The proverbial commercial real estate bubble, which some say looms over the market today has been much noted of late. However, a Global Real Analytics report released in August may help to dispel fears of a pop—or even that there's a bubble to pop in the first place.

GRA's report shows that current commercial real estate prices are not overblown compared to real estate prices of the 1980s. Using 1985 as a base year for comparison, GRA's analysis found that inflation-adjusted prices for three of the four major property categories (office, warehouse and retail) are in fact below 1985 numbers. GRA analysts used annual nominal price information from the GRA National Real Estate Index and applied annual consumer price index figures from the U.S. Bureau of Labor Statistics.

National Commercial Real Estate Prices Inflation-Adjusted, 1985 to present

Source: Global Real Analytics National Real Estate Index and U.S. Bureau of Labor Statistics

Dan O'Connor, GRA's managing director of global forecasting and research, says the contemporary situation is different for four reasons: 1) there is far more transparency and discipline in capital markets today than before, 2) debt is cheaper and investments are mo re rational, 3) there is less illiquidity risk because of the amount of capital and transaction activity and 4) the previous burst was largely attributable to vast oversupply without corresponding demand. "Property prices might plateau as opposed to go down," O'Connor says. "If we had a true bubble, you would see valuations go down. I just don't see how we could have a comparable bubble burst to the one we did in the late '80s."
—Jada A. Graves