MIT commercial property price index posts record drop

Aug 03, 2009
Commerical Property Price Indexes Graphic / MIT/CRE

(PhysOrg.com) -- Transaction prices of commercial property sold by major institutional investors fell by 18 percent in the second quarter of 2009, according to an index developed and published by the MIT Center for Real Estate (MIT/CRE).

The 18.1 percent drop in the transactions-based index (TBI) for the is by far the biggest quarterly decline in the gauge's 25-year history. (The second-biggest down quarter was the fourth quarter of last year, at -10.6 percent.) This was the fifth consecutive quarterly drop and the seventh in the past eight quarters. The index is now down 22 percent year-to-date, down 32 percent from where it was a year ago and down 39 percent from its mid-2007 peak -- far greater in nominal terms than the 27 percent drop the index experienced in the previous major commercial property in the late 1980s and early 1990s (the two drops are now tied in real terms, net of , at 41 percent), and substantially greater than the current drop in national housing prices (about 30 percent).

"The big news this quarter is not just the magnitude of the drop, but the fact that transaction volume actually increased in the presence of this decline, the first volume increase since last summer," said Professor David Geltner, director of research at MIT/CRE. "Perhaps most important, the supply-side index of the prices property owners are willing to sell at plunged a record 18.5 percent, suggesting a degree of 'capitulation' which may help to bring market prices finally to a bottom; this is the kind of thing that could begin to rebuild liquidity in the market."

MIT/CRE publishes not only the price index based on closed deals, but also compiles indices that separately gauge movements on the demand side and the supply side of the market that it tracks. The demand-side index tracks the changes in prices that potential buyers are willing to pay (sometimes called a "constant-liquidity" index of the market, because it tracks how much prices would have to change to keep a constant ability to sell as many properties at the same rate of trading volume). That index has now fallen steadily for all of the past eight quarters. It fell again in the second quarter, almost in lock-step with the supply-side index, bringing the demand index now to a level 48 percent below its mid-2007 peak.

"As is generally the case, the results posted by our index are corroborated by recent evidence from another commercial property price index whose methodology was developed at the MIT/CRE: the Moody's/REAL Commercial Property Price Index, produced by Moody's Investors Service," said MIT/CRE Research Technician Holly Horrigan. "The Moody's/REAL report released by Moody's on July 20 indicated that index dropped 16 percent during April and May alone, which by May put it already down 22 percent year-to-date and 35 percent below its 2007 peak," Horrigan noted.

The TBI tracks the prices that institutions such as pension funds pay or receive when transacting commercial properties like shopping centers, apartment complexes and office towers. The MIT Center's TBI is based on prices of National Council of Real Estate Investment Fiduciaries (NCREIF) 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 currently 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 of it in 2006. NCREIF supported development of the index as a useful tool for research and decision-making in the industry.

Provided by Massachusetts Institute of Technology (news : web)

Explore further: 3 Qs: Economist makes the case for new quasi-experiments as a way of studying environmental issues

add to favorites email to friend print save as pdf

Related Stories

Tech Sector Healthiest in over 5 Years

Mar 25, 2007

A new report finds that with strong performances by vendors, demand for technology products and a positive employment market, the health of the U.S. technology industry is at its highest level in five-and-a-half years.

IT Worker Confidence a Mixed Bag

May 04, 2007

Two recruiting companies find different results when they poll IT workers about their confidence in the economy, their jobs and finances.

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Clippers and coiners in 16th-century England

In 2017 a new £1 coin will appear in our pockets with a design extremely difficult to forge. In the mid-16th century, Elizabeth I's government came up with a series of measures to deter "divers evil persons" ...

Airbnb rental site raises $450 mn

Online lodging listings website Airbnb inked a $450 million funding deal with investors led by TPG, a source close to the matter said Friday.

Health care site flagged in Heartbleed review

People with accounts on the enrollment website for President Barack Obama's signature health care law are being told to change their passwords following an administration-wide review of the government's vulnerability to the ...