An outfit called Global Real Analytics sent me a study last week that aimed to debunk talk of a bubble in the commercial real estate market. I thought of it again this week because the Wall St. Journal published a page one article on Monday saying that bank regulators were concerned about the sky-high exposure many lenders had to real estate.
The Global report concluced that—after adjusting for inflation— three of four commercial real estate categories showed values below what they were in 1985. Office was down 10%, retail down 5.1% and warehouse, -3.8%. Only apartments have done better, up 43% since the mid-80s. “U.S. commercial real estate is inexpensive by global standards,” the report went on to say. “Is there really a price bubble or is commercial real estate still a bargain? Our answer: Not yet overblown with upside potential…”
Global Real Analytics must have a broker’s license and be badly trying to drum up sales. “This is certainly one of the more idiotic studies I have read,” said one real estate source of mine, who’s been busy selling his buildings at today’s high prices. “The conclusion should not be based on 1985, the height of the bubble, but the mid-90’s, which were a period of stability in many ways. From then to now, inflation adjusted prices in office, for example, increased by 50%.” Indeed, Global’s report shows that office prices have climbed nearly 50% since their bottom in 1993.
As I’ve said in this column before, you can reach all different kinds of conclusions with statistics. To justify values in real estate these days you really have to.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.