Commercial real estate prices in the U.S. are beginning to steady, driven by activity in smaller markets and falling interest rates as 2025 approaches, according to CoStar.

Recent Trends:

CoStar’s value-weighted composite index rose by 1.3% in November, marking its fourth consecutive monthly increase—the longest streak of growth since mid-2022. Although prices remain 2.5% lower than they were a year ago, the steep declines seen from mid-2023 to mid-2024—when prices dropped by 12.4%—have eased considerably.

Key Drivers:

Declining borrowing costs and a resurgence of investor interest in short-term financing are boosting market sentiment. Recent Federal Reserve rate cuts have contributed to this optimism, although further reductions are expected to slow in 2025 as inflationary pressures persist.

Small Market Strength:

Lower-cost properties in smaller markets are leading the recovery. CoStar’s equal-weighted composite index grew by 1.4% in November, reflecting a 3.4% year-over-year increase—the strongest annual performance since late 2022.

Market Activity:

Although overall sales activity in November dropped seasonally by 17.2%, annual repeat-sales volume increased by 7.4%. This growth was driven largely by a 13.2% jump in high-value, investment-grade transactions.

What It Means:

After a challenging period, U.S. commercial real estate pricing is finding its footing. Strength in smaller markets and the support of lower interest rates suggest potential for a broader recovery in 2025. Investors focusing on short-term financing and high-growth areas may encounter significant opportunities ahead.