Waiting for a Better Deal? The Market May Have Other Plans

The commercial real estate market is entering a new phase, with many investors and industry leaders anticipating stronger deal flow in 2025.

That’s according to a TD Bank survey of CRE professionals at the recent CRE Finance Council in Miami, where 76% of respondents said declining property values will drive increased investment this year.

However, recent data suggests that pricing may already be stabilizing—challenging expectations of further price declines and raising critical questions for investors:

• Are the best opportunities happening right now?
• Will investors waiting on deeper discounts miss the window?
• How will pricing trends, cap rates, and development costs shape dealmaking?

Where Prices Are Headed

Despite widespread anticipation of continued price declines, new market data signal a turning point—the first time in over a year that CRE pricing trends have moved into positive territory.

Green Street’s Commercial Property Price Index recorded a 4.5% increase in CRE pricing over the 12 months leading up to February 2025. MSCI Real Capital Analytics CPPI, which is based on repeat sales transactions, showed 0.3% annual growth in January 2025, marking the fourth consecutive month of increases. CRE prices also rose 0.5% month-over-month, which, if sustained, suggests an annualized growth pace of 6.5%.

Cap rates, meanwhile, continue to expand, albeit at a more measured pace when compared to the dramatic spikes seen during previous interest rate-hike cycles. According to TD Bank’s survey, 61% of respondents expect further cap rate expansion before stabilization later in 2025.

The role of interest rates remains a key concern. Slightly over half of survey respondents believe that future rate movement—particularly potential cuts—will have the biggest impact on the sector. However, persistent inflation and geopolitical uncertainty make significant rate cuts unlikely, aligning with the Fed’s firm stance on tamping down inflation.

An Uneven Recovery 

As broad-based price corrections slow, the recovery is proving uneven across property sectors. While some asset classes are gaining momentum, others continue to struggle.

According to the MSCI Real Capital Analytics CPPI, industrial and retail were the only two property sectors that posted year-over-year price gains in January 2025. Industrial recorded its seventh consecutive month of annual growth, reflecting continued resilience. Over the year, industrial assets saw a 3.5% hike in prices.

Retail pricing increased 5% YoY in January 2025, and 1.5% month-over-month—a pace that, if sustained, would equate to an 18.9% annualized growth rate, underscoring the sector’s strong momentum. And while pricing for nearly all other property types fell over the past year, they trended up incrementally month-over-month, potentially pointing to greater annualized gains.

The only product type to show a considerable decline in January was CBD office space, which fell 10% over the year and 0.6% from the previous month. That aligns with a CommercialEdge report that found the average sale price of CBD office assets fell 28% throughout 2024. The firm notes that CBD prices have registered a 60% decline in value since 2019, while suburban assets fell 32%.

Pricing for the broader office sector was down 11% by the end of last year, following a steeper decline of 23% in 2023. At the same time, the number of distressed sales nearly doubled from the prior year—over a third of the 600 deals that closed last year involved assets that traded for less than half their prior value. With a national vacancy rate approaching 20%, a broad office rebound remains highly unlikely, at least for the near term.

Takeaways for Investors

For investors and brokers, the key question isn’t just whether prices will fall further—but how market conditions will shape dealmaking in the months ahead.

• Some price adjustments are still occurring, but waiting for a dramatic market reset may no longer be realistic.
• Cap rate expansion is moderating, and investors betting on major rate declines may need to reassess expectations.
• The window for value-driven acquisitions may be narrowing as pricing stabilizes.

The CRE market is shifting from uncertainty to opportunity, but those who wait too long may find themselves chasing a market that has already turned.