Is Commercial Real Estate In Trouble?

By Nick Porcell

According to the transaction-based index, which was developed at MIT in 1984, fell 10.6 percent in the fourth quarter of 2008. This was the single greatest drop of the index in a quarter since the nine percent drop in the fourth of 1987. The index tracks the prices that institutions such as pension funds pay or receive when buying or selling commercial properties like shopping malls, apartment complexes and office towers. "It now seems likely that this down market will be at least as severe as that of the early 1990s for commercial property," Professor David Geltner, director of research at the Center for Real Estate. One example of a recent sale, ING sold a West Palm Beach, Fla., office it bought in 2006 for $140 million and sold it this year for $66 million.

However, Casey B. Mulligan, a University of Chicago economics professor, does not think that the commercial real estate market will be hit hard at all by the economic downturn. The commercial real estate market fell far behind the construction of the housing market during the housing boom. Professor Mulligan then goes to say baring any further decline of business activity he does not expect to see a surplus of commercial real estate.

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