Cap Rates Decline Slightly For Struggling Office Properties

Cap rates for Class B and C office properties peaked at 74% carrying double-digit yields in late 2024, but eased slightly to 71% in early 2025.
The shift follows improving capital market conditions, stabilizing inflation, and a renewed investor outlook on office income potential.
While most respondents expect no near-term cap rate changes for CBD offices, 16% anticipate a decline—suggesting cautious optimism for recovery.

Key Takeaways

Signs Of Recovery

After facing some of the heaviest pressure in commercial real estate, Class B and C office assets may finally be catching a break, reports GlobeSt. According to CBRE’s latest cap rate survey, double-digit yields dominated the lower-tier office market through late 2024. These high yields appear to have peaked in the second half of that year.

In the first half of 2025, the share of B and C office properties with double-digit cap rates slipped slightly—from 74% to 71%. This modest decline could signal the beginning of a recovery phase, according to CBRE.

Market Context

These changes follow a turbulent macroeconomic backdrop. The Federal Reserve began raising interest rates in March 2022 in response to persistent inflation, ultimately leading to higher borrowing costs and investor caution through much of 2023 and 2024. As inflation started to cool in late 2024, investor sentiment began to improve.

What The Data Shows

CBRE’s ongoing tracking of office yields by market, submarket, and asset class shows the steady rise in cap rates throughout 2023 and 2024. In early 2023, 44% of Class B and C offices had cap rates in the double digits. That climbed steadily, peaking at 74% in the second half of 2024.

Although 71% of these properties still carry double-digit yields, CBRE’s latest report notes this may signal that pricing pressures are finally easing.

Investor Sentiment

In the first half of 2025, 68% of CBRE survey respondents said they expect no further change in cap rates for central business district offices. Another 16% anticipate a decline. This marks the first signs of investor optimism in years.

Why It Matters

Stabilizing cap rates, even in the lower tiers of the office market, suggest the worst may be over for the sector. If income expectations continue to improve and capital markets stay accessible, transaction activity could pick up again. This may also lead to gradually firming asset values.

What’s Next

While risks remain—particularly around long-term office demand and refinancing pressures—the easing of cap rate pressure may draw investors back into the market. This is especially likely if the Federal Reserve begins cutting rates in response to ongoing disinflation.

CBRE’s full-year 2025 data will offer a clearer picture, but for now, lower-tier office assets may be turning a corner.