Risky office affairs.

Does the commercial-property cycle dance to the same beat as the housing market? Just as households have come to see their home as their best investment, investors have also changed their view of commercial real estate. Prices of commercial property have always been more volatile than those of housing, partly because the supply lags are longer. Booms and busts in commercial property caused widespread banking problems in the early 1990s, when property prices fell by 50% in America and Britain and by 70-80% in Japan and Sweden. Figures published by Reis, a property-research firm based in New York, show that the volume of occupied office space in America has already fallen for two consecutive years and declined again in the first quarter of this year. When inflation was high, bond yields were higher than property yields. But rents generally rise in line with inflation, so the percentage yield (income divided by price) is steady, whereas bonds pay a fixed income, so if inflation falls, and hence bond prices rise, the percentage yield falls.