The commercial property recovery is happening, just not where most people are looking. Secondary markets posted a 1.8 percent year-over-year price gain in April while the six major metros—Boston, Chicago, Los Angeles, New York, San Francisco and Washington—managed only 0.2 percent growth, according to MSCI.
That gap isn't just a recent development. Over the past three years, non-major metros have risen 1.9 percent, while major metros have lost 6.0 percent of their value. The divergence points to something more fundamental than cyclical timing. Capital is flowing to markets where pricing didn't get as stretched during the run-up and where the path to stabilization doesn't require solving complicated urban office dynamics.
The monthly numbers from April underscore the trend. Secondary cities gained 0.5 percent from March while major metros slipped 0.2 percent. At a time when borrowing costs continue to weigh on dealmaking across the board, investors seem more comfortable underwriting deals in markets where the basis is lower and the risk-reward calculation tilts more favorably.
Office Defies Expectations
What makes the overall commercial property numbers halfway decent is office. CBD office prices climbed 4.1 percent year over year and jumped 0.8 percent from March, the strongest monthly performance of any asset class. That marks eight consecutive months of annual growth for downtown office, a run that seemed unlikely given the pessimism surrounding the sector not long ago.
Suburban office followed suit, up 3.1 percent annually and 0.1 percent month over month. Prices have been rising since February 2025, though both CBD and suburban office remain well below their 2022 peaks—down 49 percent for downtown locations and 15 percent for suburban properties.
The simultaneous recovery in both segments suggests the repricing has run its course, at least for now. Buyers are stepping in at these levels, whether because they see genuine improvement in fundamentals or simply because the discounts have become deep enough to offset ongoing uncertainty about office demand. Either way, transaction activity is picking up and prices are responding.
Everything Else Tells a Different Story
Industrial, which spent the past few years as the market's star performer, is losing steam. Prices rose 1.9 percent year over year, marking the eighth straight month of decelerating growth from a 4.1 percent peak last August. The sector is still trading near its all-time high from September 2025, so there's no crisis brewing, just a clear shift from rapid appreciation to something more sustainable.
Apartments are in rougher shape. Prices fell 1.1 percent from a year earlier and dropped 0.4 percent from March. That monthly decline annualizes to 4.3 percent, and multifamily has now given back nearly 20 percent from its July 2022 peak. Overbuilding in many markets, combined with rent growth that's cooled considerably, means there's not much pushing values higher. Developers who started projects when capital was cheap are now delivering into a market where buyers are scarce and pricing power has evaporated.
Retail posted the steepest annual drop of any property type, down 2.3 percent year over year. But there are signs the bleeding may be slowing. Prices edged down just 0.1 percent in April, the fifth consecutive month where the pace of decline has moderated. Whether that represents an actual bottom or just a pause before another leg down remains to be seen.
What's Holding Pricing Back
The modest 1.1 percent year-over-year gain in the overall national index comes despite borrowing costs that remain stubbornly high. Federal Reserve rate cuts that many expected earlier this year keep getting pushed back as energy prices climb on Middle East tensions, MSCI noted. That's left dealmaking dependent on all-cash buyers or those willing to accept returns compressed by expensive debt.
The 0.2 percent monthly increase in April, which annualizes to a 2.0 percent pace, suggests some momentum is building. But without cheaper capital, that momentum will be hard to sustain. Investors can only pay so much when they're financing acquisitions at current rates, particularly in major metros where basis risk remains elevated and the office recovery is still playing out against a backdrop of structural questions about demand.
For now, the path of least resistance appears to be secondary markets, where pricing is more reasonable and recovery doesn't hinge on solving the riddle of what will happen to downtown office towers in a hybrid work world. That's showing up in the numbers, and there's little to suggest the pattern will change anytime soon.
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