US Commercial Real Estate Sales Prices Down 15% in 2008
Transaction sale prices of US commercial property sold by major institutional investors fell by more than 10 percent — a record — in the fourth quarter of 2008, according to the MIT Center for Real Estate, and also posted a record 15 percent drop for the year.
The 10.6 percent drop in the Center’s transactions-based index (TBI) for the fourth quarter is the largest quarterly decline in the gauge’s history, which dates to 1984.
The index’s performance means that prices in institutional commercial property deals that closed during the fourth quarter for properties such as office buildings, warehouses and apartment complexes are now 22 percent below their peak values attained in the second quarter of 2007.
The index has fallen in five of the past six quarters, but the recent drop is by far the steepest.
The 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 six quarters, dropping again in the third quarter by 10.3 percent, and is down 23 percent for the year and 31 percent since its mid-2007 peak.
Transaction volume underlying the TBI was so low at only 40 sales, including zero retail properties, that the Center was unable to update the retail indexes.
The TBI tracks the prices that institutions such as pension funds pay or receive when transacting commercial properties like shopping malls, 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.
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