Office sector’s growth leads CRE’s pricing recovery

Commercial real estate’s recovery continued in September, with office pricing — once left for dead — posting the strongest growth.

Across all commercial property types, pricing ticked up 0.7 percent in September compared to the month before, according to a third-quarter report from MSCI’s RCA commercial property indices.

Commercial real estate pricing also is up for the prior three months, by 2.2 percent, and over the past year, by 2.6 percent. However, the industry is still recovering from the jolt of the pandemic, the threat of tariffs and economic uncertainties, maturing debt and high borrowing costs. Though pricing is 14 percent higher than it was five years ago, it’s 8.3 percent lower than it was three years ago.

Investor sentiment also appears to have improved in the third quarter, as dealmaking has grown for six straight quarters, per the report, likely buoyed by recent interest rate cuts.

Pricing in Raleigh/Durham, Sacramento and South Florida climbed the most over the past year, by roughly 10 percent. The metros that notched the steepest decline in commercial property pricing year over year were San Francisco, Boston and Los Angeles.

The office sector recorded the strongest growth among the property types in September, with an increase in pricing of 1.4 percent month over month. Office is also the best-performing sector over the past three months (+4.2 percent) and over the past year (+7.1 percent).

The office sector’s rebound stands in stark contrast to what the sector has been through during and immediately after the pandemic, when scores of workers stayed home. Compared to five years ago, office pricing is still down by 5 percent. Compared to three years ago, it’s down by nearly 17 percent.

The worst-performing sector in September was multifamily, which saw pricing edge down by 0.3 percent versus the month before. Multifamily, which has seen high waves of supply in certain markets, particularly throughout the Sun Belt, was also the only property type that saw pricing fall during the time frame, as well as during the prior three-month period (-0.8 percent) and over the past year (-0.8 percent).