Tuesday, August 4, 2009

Boston Business Journal – by Michelle Hillman

Commercial real estate prices fell nationally by more than 18 percent on a year-over-year basis in the second quarter, although experts say signs of a positive “clearing effect” on the supply side may indicate a bottom is near, according to an index published by the Massachusetts Institute of Technology’s Center for Real Estate.The 18.1 percent price drop was the biggest quarterly decline in the 25 years since the index has been published. The second-biggest drop in a quarter was the fourth quarter of 2008 when the quarterly decline was 10.6 percent.

Few commercial properties have sold in Greater Boston this year with transaction dollar volume off 90 percent from the peak in 2007, according to a recent report from the Boston Business Journal.

The second quarter decline was the fifth consecutive quarterly drop and the seventh in the past eight quarters. To date, the index is down 32 percent from a year ago and 39 percent from its mid-2007 peak, according to MIT.

The index’s 39 percent drop since its mid-2007 peak dwarfs the 27 percent decline the index experienced during the commercial downturn of the late 1980s and early 1990s. By comparison, the current drop in national housing prices is 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 David Geltner, director of research at MIT/CRE, in a statement. “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.”

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