US Commercial Property Values 8-15-25

Significant Drops in US Commercial Property Value from 1960 to Present

The US commercial property market has experienced periods of both significant appreciation and notable downturns since 1960. While historical data suggests overall strong performance, with annualized returns averaging around 9% over the past 30 years, several specific instances show significant drops in property values. These drops are often linked to economic factors and market conditions: 

·       1980s and Early 1990s: A boom in commercial construction in the 1980s led to a massive oversupply of space, resulting in serious financial problems for many institutions and investors. This oversupply, coupled with a period of aggressive monetary tightening by the Federal Reserve, caused a significant plunge in construction and property values in the late 1980s and early 1990s, with a 17% decline in construction between 1985 and 1987.

·       Global Financial Crisis (2007-2009): The mid-2000s saw a real estate bubble, particularly in residential housing, fueled by loose lending practices and speculative investing. This was followed by a sharp downturn, with commercial property prices falling about 40% from late 2007 to early 2010.

·       2022-Present: The recent period of rising interest rates, initiated by the Federal Reserve in March 2022, has led to a significant decline in commercial property prices, according to the International Monetary Fund. Commercial property prices have fallen by 11% since the beginning of the Fed's rate hikes, erasing gains from the preceding two years. This downturn is attributed to the increased cost of borrowing, which dampens investment, and a slowdown in economic activity, which reduces demand for commercial properties. Adding to the challenge, apartments, particularly those built between 1961 and 2000, saw their assessed value drop by 3.7% in 2025, accounting for 70% of the overall apartment value drop of 2% that year. 

Factors contributing to drops in commercial property values:

·       Excessive supply (overbuilding): A major factor in the 1980s and early 90s crash.

·       Rapid growth in mortgage debt (excessive leverage): Also a contributing factor in the 1980s.

·       Economic recessions and downturns: Lead to reduced demand for commercial spaces, increased vacancy rates, lower rents, and higher tenant defaults, says CRE Investor Coach.

·       Interest rate hikes: Increase borrowing costs, making investments less attractive and slowing property acquisitions, according to gomezgroup.com.

·       Shifts in demand due to changing trends: Remote work and e-commerce have negatively impacted office and retail spaces. 

While commercial real estate has shown resilience and long-term appreciation, it is susceptible to cyclical downturns influenced by broader economic forces and market imbalances. Understanding these cycles and the factors that influence them is crucial for investors and stakeholders in the commercial real estate market. 

Since 1960, US commercial property values have experienced several periods of decline, often tied to economic recessions and specific market dynamics. 

Here's a look at some key periods:

·       Early 1990s: Excessive supply, coupled with lower demand growth rates in the late 1980s, sent most U.S. office markets into the largest down-cycle since the Great Depression, according to the Zell/Lurie Real Estate Center at Wharton.

·       Late 2007 to Early 2010 (Global Financial Crisis): Commercial property prices fell about 40% during this period, due to a broader economic slump and contraction in funding for commercial real estate projects.

·       Early 2022 onwards: The commercial real estate market has been under pressure due to rising interest rates, resulting in an 11% drop in prices since March 2022, erasing the gains of the preceding two years. 

Factors contributing to declines

·       Interest Rate Hikes: Higher borrowing costs make it more expensive to invest in commercial properties, directly impacting prices and slowing economic activity, which reduces demand.

·       Economic Recessions: Recessions typically lead to decreased demand across all real estate asset classes as businesses scale back and consumers reduce spending.

·       Overbuilding/Excessive Supply: Periods of rapid construction can outpace demand, leading to higher vacancy rates and downward pressure on rents and property values.

·       Sector-Specific Shifts: Changes in how people work (remote/hybrid models impacting office space) and shop (e-commerce impacting retail) can lead to declines in specific commercial property types, according to The Wall Street Journal.

·       Lending Caution/Debt Maturity: Lenders may become more cautious after downturns, making it harder to secure financing for commercial projects, and a large volume of maturing debt can further impact the market. 

Important notes

·       Commercial real estate has also shown periods of strong performance and resilience, often outperforming other asset classes over longer time horizons.

·       The impact of downturns can vary significantly across different property types and geographic regions.

·       For example, while office and retail sectors have faced significant challenges, multifamily and industrial properties have shown greater resilience

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Comments

I remember the commercial property declines in Atlanta GA in the 1990s. The Japanese investors bought high-rise office building and lost a fortune selling them at a loss. Atlanta is vulnerable to the rollercoaster commercial property ride, because Georgia is a competitive magnet for business development.

Norb Leahy, Dunwoody GA Tea Party Leader