Commercial Property Price Index Hits Record Drop

Transaction sale prices of commercial property sold by major institutional investors fell by more than a record 15 percent in 2008, according to an index developed and published at the MIT Center for Real Estate. For the fourth quarter 2008, prices fell by more than 10 percent.

The index’s performance means that prices in institutional commercial property deals that closed during the four quarter for office buildings, warehouses, and apartment complexes are now 22 percent below their peak values attained in the second quarter of 2007. Although the index has fallen in five of the past six quarters, the fourth quarter 2008 drop is by far the steepest.

“It seems likely that this down market will be at least as severe as that of the early 1990s for commercial properties,” said Professor David Geltner, director of research, Center for Real Estate. In the last major downturn in the U.S. commercial property market 20 years ago, the transactions-based index declined a total of 27 percent from 1987 through 1992, with most of the drop occurring in 1991 to 1992. “Nevertheless, a decline of 22 percent compares favorably to the stock market, which has lost more than 40 percent over the same period, including 20 percent in the last quarter of 2008,” he noted.