Commercial real estate values are beginning to stabilize, but the recovery is proving uneven across U.S. markets.
In April, prices in non-major metros rose 1.8% from a year earlier, according to MSCI, while the six largest gateway markets — Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. — posted a much smaller 0.2% gain. The split was also visible on a monthly basis, with secondary markets increasing 0.5% from March as major metros declined 0.2%.
The longer-term picture shows an even wider gap. Over the past three years, property prices in smaller metros have increased 1.9%, while the major markets have recorded a 6% decline. The trend suggests investors are finding more attractive opportunities in places where values did not climb as aggressively during the last cycle and where fewer questions remain around urban office demand.
Overall, MSCI’s national commercial property index was up 1.1% year-over-year in April and rose 0.2% from March, reflecting modest improvement despite the continued drag from elevated borrowing costs.
Office was one of the stronger-performing property types in the report. CBD office prices increased 4.1% year-over-year and 0.8% from March, marking the strongest monthly gain among major sectors. Downtown office values have now posted annual growth for eight consecutive months.
Suburban office prices also improved, rising 3.1% from a year earlier and 0.1% month-over-month. Even so, both office categories remain well below prior highs. CBD office values are still down 49% from their 2022 peak, while suburban office prices are off 15%.
The recent gains indicate buyers may be returning at repriced levels, particularly where discounts are substantial enough to compensate for lingering uncertainty about tenant demand and hybrid work.
Other sectors showed less momentum. Industrial property prices rose 1.9% year-over-year, but the pace of growth has continued to slow since peaking at 4.1% last August. The sector remains near its September 2025 high, suggesting a cooling period rather than a major correction.
Multifamily continued to face pressure. Apartment prices fell 1.1% from a year earlier and declined 0.4% from March. Values are now nearly 20% below their July 2022 peak, as new supply, slower rent growth and limited buyer activity continue to weigh on the sector.
Retail recorded the largest annual decline, with prices down 2.3% from April 2025. However, the monthly drop was limited to 0.1%, marking the fifth straight month in which the pace of decline has eased.
High financing costs remain one of the biggest obstacles to a broader recovery. MSCI noted that expectations for Federal Reserve rate cuts have been delayed, in part because of renewed inflation concerns tied to rising energy prices and Middle East tensions. As a result, many deals remain difficult to finance, especially in markets where pricing risk is still elevated.
For now, secondary markets appear to offer investors a clearer path forward. Lower entry points, fewer unresolved office-sector challenges and more favorable risk-adjusted pricing are helping smaller metros outperform the traditional gateway cities.
Source: GlobeSt.