After years of uncertainty and stalled negotiations, the commercial real estate market may finally be finding its footing. For some time, industry insiders speaking to GlobeSt.com have voiced concerns about the lack of reliable price discovery in the wake of business disruptions. Buyers and sellers, entrenched in their own price expectations, often found themselves at an impasse, leaving deals undone and valuations in limbo.
This persistent stalemate has complicated transactions and muddied the waters for accurate property valuations. CRE, by nature, is already challenging to mark to market, largely due to the slow pace of deals and the infrequency with which identical properties change hands. Yet, according to data gathered by SitusAMC’s Real Estate Valuation Services, there are signs that the market’s fog may be lifting. The company, which tracks transaction data, appraisal trends and net operating income performance, reports that the gap between CRE sales and appraised values narrowed in the first quarter of the year—from 28% down to 22%. SitusAMC described this as a reason for “cautious optimism.” Sales prices have come within 4% to 5% of NCREIF values, a notable improvement from the 10% gap seen in the fourth quarter of 2024.
However, that optimism is tempered by the reality of transaction volumes, which remain “well below typical first-quarter levels,” according to SitusAMC. This limited activity is akin to surveying with too few respondents—the results might be accurate, but there’s less certainty that they represent the broader market.
Recommended For You
Among the various CRE sectors, industrial properties have emerged as a clear bright spot. This sector has largely avoided the worst of the recent market turmoil, with prices holding steady at 95% of their peak values. Pro forma appraisal cap rates were up 3.9% quarter-over-quarter, and transaction cap rates actually declined. Strong net operating income trends have further supported valuations, suggesting that the industrial sector may have already hit bottom and is now poised for long-term growth.
The office market, as GlobeSt.com has frequently reported, remains divided. Cap rates hovered just below 6%, reflecting declining net operating income and persistent vacancies. Still, top-tier office assets saw quarter-over-quarter gains. Transaction cap rates for offices jumped past 9%, but sales volumes were low. There are signs of renewed leasing momentum, particularly for Class-A and Trophy properties in markets like New York City. Some owners are now reconsidering their strategies, opting to hold onto assets rather than exit and reduce their allocations.
Multifamily properties have shown stability, with pro forma cap rates around 4.75% and transaction cap rates at approximately 4.37%. Limited new construction is expected to help vacancies decline to between 3.5% and 4% by 2027. Moody’s projects that annual rent increases could reach 5% by 2029, supporting strong unlevered internal rates of return.
Retail, meanwhile, remains stable but fragmented, as evidenced by volatile transaction data. Net operating income growth has been consistent, and cap rates have held steady. The transaction cap rate rose from 5% in the first quarter of 2025 to 6.5% in the fourth quarter of 2024, a shift largely attributed to grocery-anchored properties.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
