- Commercial property values declined for a third straight month, led by investment-grade assets.
- Tenant demand remains weak, with 50.9M SF projected to be vacated in Q2.
- Investment-grade deals rose 3.8% in May, while general commercial transactions declined.
- Total repeat sales climbed 26.8% year-over-year, signaling selective investor return.
Tenants Retreat As Buyers Return
Tenant pullback is weighing heavily on US commercial real estate values, especially among larger, institutional-grade properties, reports CoStar. Their latest Commercial Repeat-Sale Indices (CCRSI) report shows property prices continuing to slide as tenant demand fails to recover.
In May, the value-weighted composite index — tracking high-dollar institutional sales — dropped 1.3% from April and 3.5% over the last three months. In contrast, the equal-weighted index, which reflects more numerous but lower-value deals, declined just 0.6% in May and has largely flattened over the last quarter.
CoStar data indicates that net absorption — the net change in occupied commercial space — remains deeply negative, particularly among premier properties. In Q2 alone, tenants are expected to vacate 50.9M SF, on top of the 83.9M SF of space returned since January.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
Larger Properties Lead The Decline
“Investment-grade properties are projected to account for nearly 60% of the negative net absorption,” said Chad Littell, national director of US capital markets analytics at CoStar. This trend marks the 13th straight quarter of weakening tenant demand, particularly in office, retail, and industrial sectors.
Nonresidential assets — including office and retail — have seen the sharpest price correction, down 1.8% over the last three months. Multifamily, in contrast, has remained relatively stable with just a 0.3% drop.
Institutional Capital Steps In
Despite the challenging fundamentals, some institutional investors are reentering the market. May saw a 1.2% month-over-month uptick in repeat sales to $10.2B. Investment-grade transactions rose 3.8% to $5.8B, even as general commercial volume fell 2.2% to $4.3B.
Over the past 12 months, total repeat sales hit $129.5B, a 26.8% increase compared to the year prior. The investment-grade portion surged 34.7% year-over-year to $78.1B — signaling renewed appetite among larger investors despite occupancy headwinds.
What’s Next
While buyer interest appears to be stabilizing, tenant demand remains a drag on valuations — particularly for high-end assets. With negative net absorption continuing into Q2, property values are likely to remain under pressure in the near term.
The market remains bifurcated: institutional capital is trickling back, but leasing fundamentals have yet to catch up.
