U.S. Commerical Real Estate Rebounds in November, But Global Investment Continues To Dip

After an October where it appeared the bottom was dropping out of the commercial real estate market (CRE), The Green Street Commercial Property Price Index® in November reported a not-so-bad performance. While the index detailed a 13% drop in October, the latest numbers show only a 0.6% drop in November. 

“2022 has been all about interest rates and the negative impact they’ve had on values,” said Peter Rothemund, co-head of strategic research at Green Street. “The good news is that commercial property valuations have improved quite a bit over the past several weeks as bond yields have retreated. While pricing may continue to go down, the large moves should be behind us.”

That’s good news for a sector that saw apartments, offices, strip malls and healthcare-related properties experience double-digit dips a month earlier. Green Street reported the most significant sectors showing pricing declines in November were apartments and net lease properties, which aligns with reports that apartment vacancies have risen with rates dropping in recent months.

The Green Street CPPI®, which is appraisal-based, sometimes varies from other indices that track commercial property prices based on transactions. 

Jones Lang LaSalle Inc., a global commercial real estate services company, reported in November that global direct investment in real estate fell for the first time on a quarterly, annual basis since the beginning of the pandemic, down 24% to $234 billion. JLL attributed the drop to an “uncertain economy, monetary policy and geopolitics.” 

Global CRE services company Newmark Group Inc. Executive Managing Director of Global Research David Bitner told GlobeSt.com that while the U.S. economy continues to grow, an imminent recession is highly likely. 

Bitner said a tightening job market, with 1.7 jobs available for every unemployed person, represents “a dynamic that has initiated a chain reaction in which wages are growing at their fastest pace in decades, causing a subsequent spike in inflation and, ultimately, a rapid increase in rates from the Federal Reserve.” 

Bitner believes that has contributed to CRE “declining overall, though the activity that is occurring remains focused on the residential and industrial sectors.”

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