Commercial real estate values are stabilizing rather than sharply rebounding, with office emerging as an unexpected bright spot in the third quarter, according to Trepp’s latest Property Price Index (TPPI).
Despite pressures from tariffs, inflation and elevated financing costs, steady job growth and low unemployment continue to support demand across most sectors. Trepp noted that the Q3 results show “a market that is stabilizing rather than snapping back,” with strength in office and industrial balancing softer performance in multifamily and lodging.
Overall, CRE prices ticked up modestly in Q3. The TPPI rose 0.25% quarter-over-quarter and 2.89% year-over-year, placing values about 3.7% above June 2022 levels. The value-weighted composite increased 0.43% in the quarter and 2.25% annually but remains roughly 8% below its 2022 peak. Smaller and mid-sized assets are now effectively above prior highs, while larger institutional properties continue to work through a pricing reset, according to Trepp.
Office was Q3’s strongest performer. The value-weighted office index climbed 1.97%, a notable gain even though prices remain about 15% below their 2022 peak. After two years of depressed pricing, the improvement suggests that firmer return-to-office mandates and targeted leasing activity are translating into higher valuations. Price discovery and distress continue, but in some markets, cap rates have adjusted enough to attract opportunistic and value-add capital. Performance remains bifurcated, with trophy and amenity-rich buildings capturing most of the upside, according to the report.
As far as other asset classes go, multifamily stayed essentially flat, with the equally weighted index up just 0.02% on the quarter and modestly above levels seen a year ago. Larger properties continue to lag, reflecting the impact of high borrowing costs and affordability pressures.
Retail pricing held steady. The equally weighted index rose 0.28% quarter-over-quarter and 2.77% year-over-year, supported by resilient consumer spending and stable fundamentals across necessity-based centers.
Industrial values continued to rise, but at a slower pace. Annual gains ranged from 1.98% to 3.43%, as demand remains driven by e-commerce, nearshoring and modern logistics needs. However, higher-value assets showed signs of cooling as companies optimize inventory levels and occupancy costs.
Lodging showed slight stabilization, inching up 0.15% in Q3, but remains the weakest sector with values nearly 14% below mid-2022 levels.
Source: “CRE Pricing Turns the Corner, but Recovery Remains Uneven”
