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GRA Analysis Refutes Bubble Trouble

SAN FRANCISCO-When adjusted for inflation and compared to the mid-1980s, commercial property values may actually be undervalued, according to Global Real Analytics.

By Brian K. Miller | Updated on September 05, 2006

SAN FRANCISCO-Refuting talk of a soon-to-burst bubble in the commercial real estate industry, locally based Global Real Analytics on Tuesday issued a report showing commercial property values are not overblown. In fact, the analysis shows that current real property values for three of four major property categories are below what they were in 1985–the start of the last period of rapid price escalation–and down even further when compared to the peak year for each asset type in the late 80′s real estate bubble.

“Contrary to popular belief, when commercial property prices are adjusted for inflation, real estate may currently be undervalued,” says GRA chief executive Richard Wollack. “Using a base year of 1985, prices are not overblown by historical standards.”

CBD office properties nationwide remain 10.8% below 1985 levels (and 14.1% below their peak price of 1987); warehouse properties show a decline of 3.5% (7% from the 1988 peak); and retail lost 5.1% (9% from the 1987 peak), according to the research, which applied the Bureau Labor Statistics’ annual Consumer Price Index to annual nominal price information from GRA’s longstanding National Real Estate Index. Only apartments effectively gained in real terms over the past two decades, with an inflation-adjusted appreciation of 43.6%.

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