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 Q22007 (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.
