Commercial real estate markets are exhibiting tentative signs of stabilization following two years of significant value compression. Office and retail property prices have found support levels as sellers adjust to new valuation realities and buyers return to the market with capital to deploy.

Transaction volumes increased 18% quarter-over-quarter, the first meaningful uptick since mid-2022. While pricing remains 25-35% below pandemic peaks, the pace of decline has moderated substantially, suggesting markets may be reaching equilibrium.

$142B
Q4 Transaction Volume
-28%
Price Change from Peak
12.4%
Cap Rate Average

Office Market Evolution

The office sector remains challenged by hybrid work adoption, with vacancy rates in major markets averaging 18.5%. However, a bifurcated market is emerging: premium, amenity-rich buildings in desirable locations maintain occupancy above 90%, while older properties struggle to attract tenants.

Landlords are investing heavily in renovations to meet evolving tenant demands for flexible layouts, wellness features, and technological infrastructure. This flight to quality is reshaping urban skylines and creating opportunities for adaptive reuse of obsolete office stock.

"The office market is undergoing creative destruction. Properties that don't meet modern standards face an uncertain future, while best-in-class assets command premium valuations."

Retail Resilience

Contrary to dire predictions, retail real estate has demonstrated unexpected resilience. High-quality shopping centers in strong demographic markets report occupancy rates of 95%, with rental growth turning positive for the first time since 2021.

The sector benefits from the failure of numerous retailers during the pandemic, which eliminated excess supply and strengthened remaining operators. Experiential retail concepts and integration with e-commerce logistics are driving new demand.

Investment Capital Returns

Institutional investors, having largely sat on the sidelines during the repricing period, are deploying capital selectively. Opportunity funds targeting distressed assets have raised over $85 billion, while core real estate strategies resume acquisitions at reduced valuations.

Foreign capital is returning to U.S. markets, attracted by higher yields relative to home markets and dollar strength. Asian and Middle Eastern sovereign wealth funds have completed several notable transactions in recent months.

Market data from CBRE, JLL, and Cushman & Wakefield.