CRE valuations have been on a roller coaster of sorts in recent years. Not long ago, US commercial real estate sales were averaging $93 billion a quarter, according to CoStar. Today, that figure remains 20% lower after a spike of activity in 2021/2022, reflecting widespread valuation markdowns due to higher interest rates and market dislocation.
“We’re operating in what I would call a ‘lower normal,’” says Rich West, MAI, head of valuation at AEI Consultants.
Topline numbers alone don’t tell the whole story. Office properties have been hit hardest, with steep declines in occupancy and sales. Industrial and retail assets, by contrast, are trading at more attractive levels. For investors who understand valuation dynamics, there’s a rare opportunity to acquire quality assets at meaningful discounts.
Office vacancies are here to stay
The office sector remains the center of market stress. Sales have fallen from a pre-pandemic average of roughly $30 billion a quarter to just $13 billion today—about 55% below normal. CoStar reports that national vacancies have climbed from roughly 9% before 2020 to 14% now.
And the office buildings that do trade “usually come with a story,” West says. “You might be looking at a property selling at a discount to replacement cost, or a building where no one knows who the next tenants will be,” he says.
Cap rates underscore this shift. Prior to the pandemic, office assets traded at around 7%, according to CoStar. Today they’re closer to 9%, signaling a higher risk premium. “Income is down because expenses are up and rents are softer,” West explains. “So even if you quote a 9% cap rate, the actual value decline is often steeper.”
That said, office could be a compelling opportunity for investors with liquidity. “You can acquire great locations at steep discounts to replacement costs,” West says.
Industrials back to normal
By contrast, industrial properties remain near historical averages. Quarterly transaction volumes hover near $20 billion, with vacancy rates near 7%, supported by e-commerce demand and resilient tenant interest.
“It looks pretty normal compared to the roller coaster we’ve seen in office,” he says.
But even stronger sectors are experiencing pressure from operating costs. Insurance premiums, maintenance and labor costs have all risen. Tariffs could drive construction and replacement costs higher.
“When the insurance bill comes in 30% higher, it goes straight to net operating income,” West says. Technology can help offset some of those expenses by reducing paperwork, streamlining operations and providing real-time tenant data.
Debt maturity could be an opportunity
Nearly $1 trillion in commercial real estate loans are set to mature, more than the market has ever refinanced in a single year, West notes.Yet, capital doesn’t appear constrained. Debt funds, insurers and even regional banks all have money to deploy. “For lenders, this is a once-in-lifetime opportunity to upgrade their portfolios,” he says.
The Fed’s April 2025 Senior Loan Officer Opinion Survey showed that only 9% of banks tightened CRE standards, down from 20% a year ago and more than 67% in 2023. While today’s valuations are lower than historical norms, “it doesn’t mean opportunity isn’t there,” West says. “It just requires a more selective eye.”
For investors willing to navigate the uneven landscape, the coming months could offer a rare window to acquire quality assets before the next cycle gains momentum.
For more insights and thought leadership from AEI Consultants, click here.
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