The Bottom In Commercial Real Estate Is In

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While the talking heads on financial TV are still spinning doom and gloom narratives about commercial real estate, smart investors need to pull back the curtain and look at what's actually happening in the market right now.

I've been pounding the table for months that we'd see a bottom in commercial real estate this year, and the data is finally backing me up. It's time to pay attention.

At the recent Trepp Connect conference in Manhattan, Victor Calanog from Manulife shared that commercial property cap rates increased by 83 basis points between 2022 and 2024. Meanwhile, the benchmark 10-year Treasury yield jumped a whopping 230 basis points.

On the surface, this looks like property prices should still be declining. But here's where it gets interesting - they're not. In fact, prices as measured by the Trepp Property Price Index actually increased in the fourth quarter, and early indications suggest Q1 might be flat or even tick up slightly.

This is exactly what happens at market bottoms, folks. The smart money moves in while everyone else is still frozen with fear.

If you need more convincing, look at the NCREIF National Property Index, which tracks over 12,800 institutionally owned properties valued at nearly $900 billion. This index just posted its first increase in value in more than two years. That's not a fluke - it's confirmation.

For Q1 2025, the index showed a 1.01% return from income and a 0.05% increase in value for a total return of 1.06%. This marks the third straight quarter with positive total returns. The index had peaked in Q1 2022 with a 5.32% return, so we're seeing a legitimate turnaround here.

Let me put this in perspective: Every single one of the seven property sectors tracked by the index posted positive total returns. Yes, even office properties, which have been left for dead by most investors.

Money Is Flowing Back

Here's where this gets really juicy. CBRE reports that investment sales volumes increased 14% year-over-year in the first quarter, while lending jumped 13%. Foreign investors boosted their U.S. activity by 7%.

The lending momentum index from CBRE, which tracks the pace of lending, increased 13% from Q4 and a stunning 90% from a year ago. Banks accounted for more than one-third of loan originations in Q1, up 22% from last year. CMBS lenders more than doubled their activity compared to a year ago.

Money is flowing back into the sector. And not in a trickle - we're talking about serious volume.

Office is no longer a four-letter word for lenders. After a year where most lenders wouldn't touch office properties with a ten-foot pole (except for absolute trophy assets), they're now willing to lend against offices under the right circumstances.

This is exactly the kind of sentiment shift that creates opportunity. When an entire sector gets painted with the same brush, mispricing occurs. Smart investors who can identify quality office assets in solid markets stand to make a fortune as this market normalizes.

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