Property Prices Are Now Only 1% Below Pre-Pandemic Levels

The Green Street Commercial Property Price Index increased by 4.4% last month, with prices of every asset type included in Green Street’s index increasing. The index is now a mere 1% below pre-pandemic levels.

“Top lines are improving, cap rates are declining, and property prices are quickly recovering lost ground,” said Peter Rothemund, managing director at Green Street. “In some cases, like self-storage, industrial, and manufactured home parks, prices are hitting new highs—and are now 15-25% higher than pre-COVID marks.”

Buyers and sellers have been in a standoff over pricing since the pandemic began, and rising prices suggest that buyers are now more willing to negotiate on price. “While some discounting has occurred in unique situations, valuations of most asset types have largely held steady or surpassed pre-health crisis levels as strong buyer interest has aligned with limited for-sale inventory,” Marcus & Millichap notes in a recent report on the phenomenon. “This dynamic has also led to cap rate compression among sought after assets.”

Pricing may also be moving because of higher transaction volume, which helps with price discovery. Commercial real estate transaction volume is expected to recover relatively quickly through 2023, to $590 billion versus $500 billion in 2021, according to the Urban Land Institute.

Rent growth will also impact pricing going forward: ULI predicts that this year industrial and apartment rent growth will be 4% and 1.7%, respectively, while retail and office are forecast at -2%, and -2.9%, respectively. And in 2022, industrial and multifamily sectors will continue to grow at 3.7% and 3% respectively, while growth for retail and office will remain stagnant. By 2023, positive rental growth is forecast for all sectors.