Commercial property pricing is meeting reality

Something is wrong in the commercial real estate market. The price per square foot has exploded since the Great Recession of 2007-8. After hitting bottom in May 2009, commercial real estate prices recovered its pre-Recession level in 2013; however, the boom in prices continued upward, reaching a peak of over 125% of pre-Recession prices in 2016.

The odd thing is that the browse-and-click Internet retail market has pushed retail store closings to historic highs, especially big box retail space. What is taking the place of the vacated retail space?

Retail store closings are at historic highs

Nothing.

These large retail spaces are sitting empty, sometimes for years, while commercial real estate prices keep going up. That’s not logical.

Reality is catching up with realty. Green Street Commercial Property Price Index (CPPI) report indicates that commercial property prices have leveled off in 2017. Of all the sectors, mall space has seen the sharpest decline in 2017, down by 11%. This may be the first hint of a commercial real estate bust cycle, that could signal the start of the next recession.

Green Street CPPI by sector