Commercial real estate pricing is beginning to recover, though the strongest gains are coming outside the country’s largest urban markets.
According to MSCI, commercial property prices in secondary markets rose 1.8 percent year over year in April, far outpacing the 0.2 percent increase recorded across Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. The divide has been building for several years. Over the past three years, values in non-major metros have increased 1.9 percent, while major markets have declined 6 percent.
The trend suggests investors are finding more attractive opportunities in markets where pricing did not climb as aggressively during the last cycle and where recovery is less dependent on the future of downtown office demand. In April alone, secondary markets posted a 0.5 percent monthly gain, while major metros slipped 0.2 percent.
Office has been one of the more surprising contributors to the improving national picture. Central business district office prices rose 4.1 percent from a year earlier and increased 0.8 percent from March, marking the strongest monthly performance among major property types. Downtown office has now recorded eight consecutive months of annual price growth.
Suburban office also gained ground, with prices up 3.1 percent annually and 0.1 percent month over month. Even so, office values remain far below their recent peaks. CBD office prices are still down 49 percent from 2022 levels, while suburban office prices remain 15 percent below their peak.
The rebound suggests buyers are beginning to re-enter the office market at reset pricing levels. Whether driven by improving fundamentals or deep discounts, the renewed activity is helping stabilize values in a sector that had been under significant pressure.
Other property types are showing a more mixed picture.
Industrial prices increased 1.9 percent year over year, but growth has continued to slow since peaking at 4.1 percent last August. The sector remains close to its record high from September 2025, indicating a moderation rather than a correction.
Multifamily continues to face headwinds. Apartment prices fell 1.1 percent from a year earlier and declined 0.4 percent from March. Values are now nearly 20 percent below their July 2022 peak. Elevated supply in many markets, slower rent growth and more cautious buyers have kept pricing under pressure.
Retail recorded the largest annual decline among major property types, with values down 2.3 percent year over year. However, the rate of decline has been easing. Prices slipped just 0.1 percent in April, marking the fifth straight month of moderating losses.
Overall, MSCI’s national commercial property index rose 1.1 percent year over year and 0.2 percent from March. The modest improvement comes despite elevated borrowing costs, which continue to limit transaction activity and weigh on investor returns.
MSCI noted that anticipated Federal Reserve rate cuts have been delayed as inflation concerns persist, including pressure tied to rising energy prices and geopolitical tensions. Without lower debt costs, price growth may remain limited, particularly in large metros where office uncertainty and higher basis risk continue to complicate underwriting.
For now, secondary markets appear to have the clearer path forward. Lower pricing, less exposure to challenged downtown office assets and more favorable risk-adjusted returns are helping those markets outperform the country’s largest commercial real estate hubs.
Source: GlobeSt.