MIT commercial real estate index posts first drop since '03

November 15, 2007

The value of U.S. commercial real estate owned by big pension funds fell 2.5 percent in the third quarter of 2007, according to an index produced by the MIT Center for Real Estate.

The drop in the MIT quarterly transaction-based index (TBI) may not only spell the end of a five-year rally that saw commercial property prices effectively double, but it may also signal that weakness in the housing market is spilling over into commercial real estate.

"The fall in our index is the first solid, quantitative evidence that the subprime mortgage debacle, which hit the broader capital markets in August, may be spreading to the commercial property markets," stated MIT Center for Real Estate Director David Geltner.

The TBI decline in the third quarter of 2007 marks its first quarterly downturn since the third quarter of 2003, when prices fell 2.4 percent. The last time prices fell more than in the third quarter of 2007 was in the fourth quarter of 2001 (9/11, recession), when they fell 3.9 percent.

Against a backdrop of more than a year's worth of housing price declines and an international credit crunch that erupted over the summer, analysts have been seeking clues about whether other markets and sectors of the economy-including commercial real estate-would be impacted.

By way of comparison, one widely used barometer of U.S. housing, the Case-Shiller price index for 20 metro areas, peaked in mid-2006 and had fallen by 4.2 percent by August 2007. But in the four quarters since the housing price peak, the TBI showed commercial prices continuing to increase-by almost 20 percent.

The TBI is based on transaction price data from the National Council of Real Estate Investment Fiduciaries (NCREIF). Launched in February 2006 and covering the period since 1984, the index of commercial real estate prices is updated quarterly and published on the Center's website, web.mit.edu/cre.

The TBI is based on transaction prices of properties sold each quarter from the property database that underlies the NCREIF Property Index (NPI), and also makes use of the appraisal information for all of the more than 6,000 NCREIF properties. Such an index-national, quarterly, transaction-based, and by property type-had not been previously constructed prior to MIT's development in 2006. NCREIF encouraged development of the index, citing the need for better tools for research and decision-making in the industry.

The TBI was the first tool released by the Center for Real Estate's new Commercial Real Estate Data Laboratory (CREDL). CREDL, which has added further tools since the TBI, is designed to be "a real go-to site," according to CREDL co-director Henry Pollakowski, comparable to the University of Chicago's Center for research in Security Prices which tracks stock performance.

Source: Massachusetts Institute of Technology

Explore further: Schlieren images reveal supersonic shock waves

Related Stories

Schlieren images reveal supersonic shock waves

August 27, 2015

NASA researchers in California are using a modern version of a 150-year-old German photography technique to capture images of shock waves created by supersonic airplanes. Over the past five years scientists from NASA's Armstrong ...

Five companies control more than half of academic publishing

June 10, 2015

A study at the University of Montreal shows that the market share of the five largest research publishing houses reached 50% in 2006, rising, thanks to mergers and acquisitions, from 30% in 1996 and only 20% in 1973. "Overall, ...

Bendable glass devices

April 27, 2015

A special class of glass materials known as chalcogenide glasses holds promise for speeding integration of photonic and electronic devices with functions as diverse as data transfer and chemical sensing. Juejun "JJ" Hu, the ...

There is really a single ideal body shape for women?

March 6, 2015

Many scholars of Renaissance art tell us that Botticelli's Birth of Venus captures the tension between the celestial perfection of divine beauty and its flawed earthly manifestation. As classical ideas blossomed anew in 15th-century ...

Tighter online controls in China point to wider clampdown

February 16, 2015

Working out of a Beijing office full of video game designers from around the world, Chinese-born Pin Wang and his startup Substantial Games should be the face of the innovative, forward-looking China that the country's leaders ...

Recommended for you

Early human diet explains our eating habits

August 31, 2015

Much attention is being given to what people ate in the distant past as a guide to what we should eat today. Advocates of the claimed palaeodiet recommend that we should avoid carbohydrates and load our plates with red meat ...

Just how good (or bad) is the fossil record of dinosaurs?

August 28, 2015

Everyone is excited by discoveries of new dinosaurs – or indeed any new fossil species. But a key question for palaeontologists is 'just how good is the fossil record?' Do we know fifty per cent of the species of dinosaurs ...

Fractals patterns in a drummer's music

August 28, 2015

Fractal patterns are profoundly human – at least in music. This is one of the findings of a team headed by researchers from the Max Planck Institute for Dynamics and Self-Organization in Göttingen and Harvard University ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.