Commercial Catastrophe!: MIT/CRE Commercial Property Index Q2 2009

The latest release of the MIT Center for Real Estate’s Transaction Based Indices for commercial real estate indicated that prices declined 4.93% from Q3 to Q4 2009 remaining 22.53% below the level seen in Q4 2008.

Supply declined significantly dropping 5.33% between Q3 and Q4 2009 and remaining some 25.47% below the level seen in Q4 2008.

Demand also declined notably dropping 4.52% from Q3 to Q4 2009 and 19.49% from Q4 2008.

Taken as a whole the total return index declined 3.67% between Q3 and Q4 2009 remaining 18.11% below the level seen in Q4 2008.

Looking at the chart you can see that although there was a notable bounce in the middle of 2009, the decline as since resumed with each measure sitting close to the lows for the cycle.

Commercial Catastrophe?: MIT/CRE Commercial Property Index Q4 2008

It’s now perfectly obvious that the commercial real estate (CRE) markets have inevitably followed the lead of the residential markets down into an historic recessionary decline.

Today, the MIT Center for Real Estate released their latest read on the nation’s commercial property market showing a steep 15.01% year-over-year decline to prices and a 23.06% decline in demand.

Worse yet, on a peak basis CRE prices have declined a staggering 21.94%.

Individually, Apartment property prices declined 16.34%, Industrial property prices declined 17.24% and Office property prices declined 18.32%.


Looking at the supply and demand indices of the “All Properties” index appears to shed some light on the factors now working to drive prices lower.

Notice that supply of retail properties has remained elevated in recent quarters, while demand has continued to deteriorate substantially.

Commercial Catastrophe?: MIT/CRE Commercial Property Index Q2 2008

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 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 appears to be a pullback of sorts that started to form during the second half of 2007 leaving prices now 9.25% below the high seen in Q2 2007.

Furthermore, in Q2 2008 the Industrial and Retail components continue to show significant peak declines of 14.90% and 6.87% respectively while the Office component grew by 5.51% on a year-over-year basis.

Looking at the supply and demand indices of the Retail component appears to shed some light on the factors now working to drive prices lower for that market.

Notice that while supply of retail properties have increased substantially in recent years, demand while remaining largely flat since 2005 has now started to decline precipitously.

It will likely take another 2-3 quarters to get a firm picture of what exactly is occurring in the nation’s commercial real estate market but the latest MIT/CRE seems to be suggesting further weakness ahead.

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.