CRE Industry Leaders Gauge Prospects for Pricing Recovery

For the third year in a row, Connect CRE is launching a summer Leadership Series. This year, the focus is on the near-term prospects for commercial real estate, and we have asked key industry executives for their assessments. For the inaugural installment, we asked about the likelihood of a general recovery in CRE pricing. Providing their insights are Keith Lampi, CEO and President of Inland Real Estate Investment Corporation; Taylor Shultz, partner with Porter Kyle; Alison Beddard, CEO at CREW Network; and Greg MacDonald, co-founder and CEO at Ballast Investments.

Commercial property pricing remains depressed compared to the recent peaks in 2022, although a few asset classes have recovered. How soon do you anticipate a general recovery in pricing, and what will lead to this occurring? 

Keith Lampi: Performance across markets and asset classes varies, but on a national level we have seen a bottom forming across institutional-grade assets. We believe a reversion to the 2009 – 2019 era economy – low inflation, low interest rates, sluggish GDP growth – is a likely longer-term outcome. While that may not bode well for all financial assets, real estate tends to do well in such environments. As the new supply boom that began in 2020 – 2021 is absorbed in some sectors and interest rates continue to slowly grind lower, the continued strong investor appetite and available capital for high quality real estate is expected to drive a continued recovery in prices, and the demand for our favored sectors should begin to outpace demand, resulting in improving results. 

Taylor Shultz: The recovery will be bifurcated between markets and asset classes. It has been no secret that many markets across the Southwest and Southeast have experienced a rush of new developments in recent years, which has led to an oversupply in some markets. Many of these high-growth markets have seen a significant decline in new starts, allowing many of these markets to absorb a significant amount of that new supply, which will eliminate the need for owners to offer concessions and allow a correction to begin. Once rents have bottomed out and concessions have been eliminated, the correction can begin, which we are already seeing in some markets. This return to rent growth on the property operation side of the equation, coupled with the much-anticipated first Fed rate cut, will ultimately boost property NOI’s and drive valuations.

Alison Beddard: Markets crave consistency, as do investors, and the more interest rates stabilize and become normalized, the more quickly we will see investors act. The volatility we saw over the past two years has continued to create pause in decision making. I think we are headed in the right direction for the new pricing norms. We’ve seen positive strides towards office market recovery in part to investors selling off targeted low-performing assets for disposition at discounts to ensure overall portfolio stability, and overall absorption increases matches with no new deliveries.  Industrial pricing remains strong with marque assets in high demand.  The upheaval of the logistics trading, distribution channels and manufacturing in the U.S. certainly may have an impact on overall investment dynamics for industrial real estate moving forward. 

Greg MacDonald: We’re not going to see a uniform recovery. Some assets with strong fundamentals and a clear path to value creation are already trading. Others will need to be repriced—or hit a loan maturity—before they move. A general recovery probably hinges on capital market stability and broader price discovery, which could take until 2026 or beyond. But in the meantime, investors willing to step into complexity can find value now. 

Where do you see opportunity in overlooked or challenged parts of the CRE landscape? 

Greg McDonald: There’s a lot of opportunity in assets that require work—older housing stock, properties with deferred maintenance, or portfolios with fractured ownership. These are harder to underwrite and harder to manage, but they’re often mispriced relative to their long-term utility. If you can solve for the complexity, the yield and the upside are there—without having to bank on cap rate compression.