Commercial Catastrophe?: MIT/CRE Commercial Property Index Q4 2007

There has been growing speculation and concern that the commercial real estate (CRE) markets will inevitably follow the lead of the residential markets down into a recessionary decline.

The notion of commercial real estate markets suffering a similar downturn as residential is both supported by historical correlations (e.g. residential and non-residential investment) as well as the anecdotally logical outcome for a market that has seen similar levels of loose over-lending.

Fortunately, we need not speculate about the current state of CRE as the MIT Center for Real
Estate tracks commercial property prices with a series of indexes that cover Apartment, Office,
Industrial and Retail property types.


Notice in the top aggregate chart, after having some substantial growth between 2003 and Q2
2007 (particularly during 2005 – 2006), there has been a precipitous 7.23% price drop during the second half of 2007.

Furthermore, in Q4 2007 the Industrial and Apartment components are now showing peak declines of 8.77% and 0.73% respectively.

In future posts, I’ll elaborate on the correlation between residential and non-residential fixed investment and add additional charts using MIT’s CRE supply and demand index data as well as the Moodys/REAL CPPI also produced by MIT/CRE.