Commercial properties produce income. The rents and leases of commercial buildings produce a steady stream of revenue for their owners, which only disappears when contracts end or clients go out of business (and a recession, while feared, has not taken effect and caused widespread business failures). In contrast, homes that are now valued at less than their purchase price not only fail to produce revenue, but become negatively valued assets that will cost the owners more than they paid for them. In these situations, many owners default on their loans rather than holding their under-water homes which are under water because their value has fallen below the amount owed on them. However, most commercial buildings are generating enough cash to pay off their loans. This is less likely to happen with a commercial property that can produce revenue while the owner waits for the property value to rebound. Furthermore, commercial real estate owners are a wealthier class than subprime mortgage owners, and they are better equipped to weather short-term losses while staying patient in anticipation of the market's eventual rebound.

 

Builders have Shown Restraint, avoiding inflated supply of office space. In the last ten years commercial developers have been conservative in their growth strategies, generally showing restraint in order to preserve property values. Office developers in the top 50 markets are expected to complete 53.9 million square feet of office space in 2008, according to the real-estate data company,  Reis Inc. While this pace is double the expansion of 2004, it is a slower rate than in historical periods of inflated supply. For example, in the five years prior to the commercial real estate collapse of the early 1990s, an average 144 million square feet of new office space was delivered annually.

 

Commercial Property Values Are Less Inflated, and will fall less, than residential home values. Commercial property values are expected to fall in the general economic contraction caused by subprime failure. But Credit Suisse projects that home prices (which have declined substantially from their peak in 2005) will fall an additional 25% to 40% in some places before they finally hit bottom. The average price of a house in the Miami area, which has already fallen around 6%, is expected to tumble an additional 40%. The U.S. Housing Market has collapsed due to failure at each level of its system - from the buyer to the mortgage broker to the real estate agency to the institutional investor - but these failings have been regulated in the commercial sector. Investors in business properties should not expect the same unraveling effect that has decimated the value of residential assets.