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: Five companies control more than half of academic publishing

Related Stories

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

French teen finds 560,000 year-old tooth (Update)

July 28, 2015

A 16-year-old French volunteer archaeologist has found an adult tooth dating back around 560,000 years in southwestern France, in what researchers hailed as a "major discovery" Tuesday.

The couple who Facebooks together, stays together

July 27, 2015

Becoming "Facebook official" is a milestone in modern romance, and new research suggests that activities on the popular social networking site are connected to whether those relationships last.

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.