GlobeSt: CRE Rebounds Robustly From Downturn

By Lisa Brown on May 18, 2015.

SAN FRANCISCO–It is widely accepted that residential and commercial real estate values move in unison. As with national real estate markets, the San Francisco market was hit across the board during the recession. Home prices declined 15% in 2008 and office rents in the city plummeted 34% that same year, according to Zillow and CompStak, respectively. However, while home sale prices took more than 30 months to recover from the downturn, the commercial market had only two flat quarters before re-establishing positive gains.

Between 2004 and 2007, median home sale prices had climbed to $822,000 and average office rents hit a peak of $43 per square foot. As the economy contracted, the real estate market declined with it. Median home sale prices fell for 1.5 years from late 2007 until 2009. Home prices then held steady, between $670,000 and $700,000, until mid-2011, before beginning the climb back up. Today the average home price in San Francisco stands at $984,500, 55% above its 2008 low and well above its pre-recession peak.

As shocking as the changes were in the housing market during the recession, that doesn’t compare to the drama that unfolded in the office leasing market. Office rents nosedived for nine consecutive quarters from $42 per square foot in 2008, down to $27.43 per square foot in 2010. Then, almost as soon as rents bottomed out in early 2010, they began to recover. Today, the average San Francisco office rent is 30% higher than pre-recession highs.

Blake Toline, research analyst at CompStak, tells "Before looking at the data, we expected both asset classes to have very similar historical price trends, which they did, for the most part. But after studying the results of our correlation study, we saw that office rents recovered much quicker from downward price trends during the recession."

While office rents fell faster and harder, there was a quicker rebound during and following the recession. However, housing prices hovered at 10-year lows for more than three years before reclaiming lost ground. Despite different levels of volatility, the common assumption that the asset classes move together still stands. With a correlation coefficient of 0.75, San Francisco home sale prices and office rents can, in fact, be expected to move together in the long term.

The home price data included in this report is based on home sale prices taken from

Zillow’s San Francisco home prices and values page. Office prices are based on starting rent figures published by CompStak. All figures are in nominal terms.

CompStak collects and verifies commercial real estate lease comparables from a membership of thousands of brokers, appraisers and researchers who trade data through CompStak Exchange. CompStak then delivers the full database of lease comps to lenders, owners and investors through CompStak Enterprise.