After several years of sluggish performance, commercial real estate may be shaping up as a value opportunity—especially as stock markets look frothy and investors question whether AI enthusiasm has gone too far.

How CRE lost momentum:

Institutional capital, once the primary driver of the CRE market, has largely remained on the sidelines. Even after five rate cuts since late 2024, many investors are still wary. The pandemic’s disruption—paired with inflation and the run-up in financing costs—pushed property values downward. Many owners also underestimated the expense of modernizing outdated buildings. Overall, CRE valuations are still roughly 17% below their 2022 highs, with office and multifamily sectors down about 36% and 19%, respectively.

A weak run in returns:

Since Q3 2019, private real estate funds have delivered around a 20% return, while the S&P 500 surged by roughly 150%. Investor attention has shifted into areas like private credit, infrastructure, and data center investments. In many cases, financing real estate is currently more appealing than owning it. Still, pricing drops of this magnitude in CRE don’t happen often—and that rarity could present a contrarian opportunity.

Hints of opportunity:

Although sentiment has been broadly negative, institutional net buying actually turned positive in 2025 for the first time in three years, according to MSCI data. Groups such as Blackstone and RXR are acquiring properties in Manhattan and San Francisco at 30–50% discounts from peak pricing. Public REITs are also trading at one of the steepest discounts relative to broader U.S. equity markets seen in two decades.

A new operating environment:

The old era of low rates, easy leverage, and automatic appreciation is over. Today, the winners will be those with assets that generate durable cash flow. Segments such as senior living, retail, and high-quality office seem to be holding up, partially because construction costs—up around 40% since 2020—have reduced new supply. That constraint could quietly support rent growth and asset performance for existing owners.

➥ THE TAKEAWAY

Still viable: Depressed valuations, restricted development pipelines, and steady income potential in select asset classes suggest that CRE could re-emerge as a defensive, yield-driven strategy—especially if the market cools off from its AI-driven equity rally.