CHICAGO—One way to chart the history of investment flows in commercial real estate over the past 15 years is via the quarterly property indices from the National Council of Real Estate Investment Fiduciaries. The NCREIF Property Index, which provides a composite total rate of return on institutional investments in the commercial property sector, reached 2.94% in the third quarter of 2000, when GlobeSt.com launched.

A year later, it had fallen to 1.6%, and would not climb above 2.0% for seven more quarters. As the first wave of the capital markets crisis to come rolled in during Q1 2008, it once again fell to 1.6%, and would enter negative territory for six consecutive quarters by the end of that year.

Conversely, Q2 2004 saw the beginning of 15 consecutive quarters in which the NCREIF Property Index never dipped below 3.0%. This was also a period in which investment sales volume reached new heights across all sectors, although the quarterly returns as measured by NCREIF did not always dovetail with quarterly sales totals as measured by Real Capital Analytics.

As that cyclical boom period got under way, Mike Winn, then a senior director with Cushman & Wakefield's Denver office, told GlobeSt.com in July '04 that in spite of the Federal Reserve's recent increase in the federal funds rate, cap rates would remain near historic lows. The investment sales market, meanwhile, would remain “red hot” both locally and nationally.

The reasons Winn cited offer a parallel to what we're seeing today. Real estate, Winn said 11 years ago, counted as one of the few investments with a current yield, chance of appreciation and a decent chance of appreciation. If investors parked their money in money markets or bonds, there would be little return, and the stock market had been volatile of late, Winn noted. He predicted that capital would continue to be plentiful for the remainder of the year for commercial real estate investments. “There's abundant equity,” Winn told GlobeSt.com. “There's no slowdown in sight.”

By early 2006, however, Prudential Real Estate Investors predicted that returns could start to ebb that year. “All good things must end, including the terrific run that real estate has had over the past several years,” Youguo Liang, then PREI's managing director of research, told GlobeSt.com. “Real estate should continue to perform well this year, however, and it remains attractive to investors, particularly with the improving property fundamentals and new supply still years away in most markets.”

In fact, investment sales volume would continue trending upward, exceeding $425 billion in '06 before reaching an all-time high of some $573 billion in 2007. Helping to drive '07's volume to an unprecedented level were massive entity-level deals: a partnership of Tishman Speyer and Lehman Brothers took apartment REIT Archstone Smith private in a $22-billion transaction, for example, while the Blackstone Group did the same with Hilton Worldwide Holdings, acquiring the hotel operator in a $26-billion leveraged buyout.

Yet even as '07 entered the record books, the year's latter half did not quite measure up to the first six months, volume-wise. Even so, that slightly less vigorous pace looked downright frenetic compared to '08, when 12-month volume fell nearly 70% to $175 billion.

Sales activity had already begun to fall off even before the series of shocks that culminated in the nearly-simultaneous bankruptcy of Lehman Brothers, takeover of Merrill Lynch by Bank of America and collapse of the nation's largest thrift, Washington Mutual. Among the Wall Street downturns seen over the past couple of decades, the one that became dramatically evident in mid-September of '08 loomed as “the most severe and the most dangerous,” Anthony LoPinto, head of Korn/Ferry International's Real Estate Practice, said in a GlobeSt.com webinar two weeks after the Lehman collapse.

The following year was considerably worse from an investment sales standpoint: a 12-month total of $52 billion nationwide as measured by RCA or $68 billion according to the Urban Land Institute. In its review of 2009, RCA called it “A Terrible Year for the Record Books,” one that saw only a single transaction of more than $1 billion.

“Only eleven additional companies invested more than $500 million each as capital for acquisitions of significant scale remained out of reach for the majority of investors,” RCA reported in January 2010. By contrast, RCA reported sales of significant commercial properties reached $32.9 billion for this past May, or more than half the analytics firm's tally for all of '09 in a single month.

A June '09 report that JPMorgan Chase had put 23 office properties totaling 7.1 million square feet on the block—including the Seattle headquarters of Washington Mutual, the bank which Chase had taken over nine months earlier—provided an illustration of the uncertainty surrounding the market. “I honestly have no idea what these properties are worth” in the current market, Dan Fasulo, then managing director of RCA, told GlobeSt.com. “That's one of the reasons there have been so few transactions—buyers and sellers can't get together and agree on a price.”

By the following year, pricing declines had begun to ease, and buyers and sellers had begun finding enough common ground that sales volume more than doubled to $146 billion. In a November '10 guest commentary, RCA founder and president Robert M. White Jr. noted parallels between the fall of '10 and the fall of '00.

“Not only have prices returned very close to where they stood a decade past, but sales volume has as well,” wrote White. “In both post-recessionary periods, real estate investors rightly took pride that overbuilding was not a cause of the decline, yet vacancy soared nonetheless. Amazingly, then and now, commercial property continues to attract new investors despite adverse economic conditions.”

The following April, NCREIF CEO Roy Rendino told GlobeSt.com that there was continued value appreciation in major markets due to strong investor demand for core real estate, which drove cap rates down to 6.1%. “However, we haven't seen a recovery in fundamentals, operating income or occupancy,” he said. “Until we see stronger job growth and the overall economy take hold, we don't show too much improvement.”

That stronger job growth would come, gradually, along with an improvement in occupancy across property sectors hit hard by the downturn. Property sales have recovered strongly, if not reaching quite the same heights they achieved in '06 and '07. Last year's total reached $424 billion domestically, just $3 billion less than the industry saw in 2006, according to ULI. The tally is expected to climb about 10% to $470 billion this year and plateau at $500 billion for both 2016 and 2017.

Along with sales volume, prices and returns have also recovered. Values have moved past the '07 peak, according to Green Street Advisors, while Q1 saw returns climb to 3.57%, the first time since Q3 of 2011 that they had exceeded 3.0% for two consecutive quarters, according to NCREIF. “Many investors assumed that commercial real estate pricing had fully recovered from the downturn by the end of 2014,” William Hughes, board chair of NCREIF and global head of real estate research & strategy for UBS Realty Investors, said in April. “The market has shown that there are still pricing gains available, as cap rates continued to fall during the first quarter.”