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Executive Summary

Looking at five decades of US commercial property transaction data, this report focuses on seven recessions and the impact on commercial property markets. The frequency and severity of negative impact are explored across different property types, regions, and markets.

In this report, we make the case that current commercial property market expectations may be overblown, and introduce a simple method for setting future recession impact expectations.

Key findings from the report include:

  • Since the 1960’s, commercial property transaction activity has grown at a rapid pace. The past three decades have been characterized by more moderate positive growth:
    • The total number of transactions (count) increased at a rate of 6% per year,
    • Aggregate dollar volume of transactions (volume) increased 10% per year, and
    • Median prices per square foot (pricing) increased at 3% per year
  • As commercial property continues to mature as an investable asset class, its characteristics will also evolve. As demand increases and more money is invested, commercial property as a whole will become more transparent, liquid, and accessible to investors. However, the maturation will also likely bring a slower pace of price appreciation for most markets.
  • The relative speed that population centers grow appears to influence market activity and pricing, more so than just absolute speed of growth. Markets with rapid, above average population growth do experience higher price growth – but not without greater overall pricing volatility.
    • Rapidly growing markets (Arrivals) tend to high pricing volatility, but low market activity (transaction count and dollar volume) volatility
    • Slower growing markets (Departures) tend to have low pricing volatility, but high market activity (transaction count and dollar volume) volatility
  • Despite the recent market’s infatuation with certain property types (i.e., Multifamily and Industrial), there remain opportunities to find other properties with similarly attractive historical reward-risk profiles in markets and property types that are less in vogue. Specifically, Retail and Office in smaller markets, and Land & Farm in well-known MSAs.
  • The assumption that the impact of the next recession on the commercial property market will be as severe as that of the most recent recession may be overblown. While the individual property experience varies, the aggregate historical recession impact on US commercial property can be summarized as, during recessions,
    • the count of commercial property transactions falls by 5.3%
    • the dollar volume of commercial property transactions falls by 16.4%
    • the median price of commercial property falls by 11.7%