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U.S. commercial property values continued their decline in May, driven by weakening tenant demand. As businesses continue to vacate space, especially in top-tier buildings, prices remain under pressure heading into the second quarter, according to CoStar.
High-End Properties See the Largest Impact
Data from the CoStar Commercial Repeat-Sale Indices (CCRSI) shows that investment-grade properties are bearing the brunt of the value drop. These premium assets, typically favored by institutional investors, are being hit hardest by rising vacancy rates. Lower-tier, smaller properties (more often traded by private investors) are seeing less dramatic price changes.
Tenant Vacancies Are Accelerating
Tenants are returning space to the market faster than before. In Q2 alone, 50.9 million square feet of office, retail, and industrial space is projected to be vacated. Since January, a total of 83.9 million square feet has become available again. Investment-grade buildings account for nearly 60% of the negative net absorption.
This ongoing trend marks the 13th straight quarter of falling 12-month net absorption, indicating long-term pressure on the leasing market.
Indexes Reflect Price Pressure
The CCRSI value-weighted composite index — which tracks higher-value deals — fell 1.3% in May and 3.5% over the past three months. In contrast, the equal-weighted index, which better reflects smaller, more frequent deals in secondary markets, dipped just 0.6% in May and remained flat over the quarter.
Nonresidential property values saw the steepest decline over the three-month period, falling 1.8%. Multifamily values remained more stable, declining only 0.3%.
Institutional Buyers Return Despite Price Drops
Despite the continued fall in prices, institutional buyers are showing renewed interest. Repeat-sale activity rose to $10.2 billion in May, up 1.2% from April. Investment-grade transactions led the way with a 3.8% monthly increase, totaling $5.8 billion, while general commercial transactions slipped 2.2% to $4.3 billion.
Over the 12 months ending in May, repeat sale volume reached $129.5 billion, a 26.8% increase from the previous year. Investment-grade sales accounted for $78.1 billion of that total, which is up 34.7% year-over-year.
