All the talk about a commercial real estate recovery or claims that “the other shoe” isn’t going to drop are focused on a narrow slice of the commercial real estate market.

Two Views of Commercial Real Estate

Two closely watched indexes on commercial real estate draw much different pictures of the market recovery.

Commercial-property valuations are up nearly 35% since hitting bottom in May 2009 and are 15% to 20% below their 2007 peak, according to Green Street Advisers' Commercial Property Price Index for February.

Valuations dropped 42.1% from their peak in October 2007 and recovered 5.5% from their low in August 2010, according to the Moody's/Real All Property Type Aggregate Index through December.

A big reason for the disparity: The two indexes track different sets of property.

The Green Street CPPI, which tracks properties owned by 47 real-estate investment trusts with roughly $400 billion in assets, is tilted toward sales of high-end and trophy buildings. Its index reflects the valuations assigned to the REIT portfolios formed by input from brokers, economists and company executives. The index uses various metrics that include the price of property deals currently being negotiated, under contract or recently closed.

Moody's index tracks all property sales of $2.5 million and more, looking only at transactions that have closed and that are repeat sales. As such, this index measures a greater pool of smaller and distressed properties than does the Green Street index.