Report: Commercial real estate values return to pre-pandemic levels in many markets

Commercial real estate values have returned to pre-pandemic levels in many U.S. markets, continuing a recovery that began late last year, according to a report from commercial real estate giant CBRE.

CBRE’s newest U.S. Cap Rate Survey found that two-thirds of investors showed an increased appetite for risk during the first half of this year and that most expect capitalization rates— or “cap” rates, which are a measure of a property’s value—to remain stable or compress across most property types through the end of 2021. A lower cap rate generally indicates a higher value, according to CBRE.

The survey compared U.S. cap rates for the first half of 2019 to the first half of 2021.

“The rapid recovery across U.S. real estate markets was mostly made possible by the massive fiscal and monetary response to the Covid-19 downturn that stabilized the economy and benefited property values,” according to Chris Ludeman, global president of Capital Markets for CBRE. “While some uncertainty remains, a strong economic recovery will continue to benefit property fundamentals, investment volumes, and values.”

Industrial markets have fared particularly well since the economic downturn in mid-2020, CBRE said. The survey showed that investors expect cap rates to continue to compress for industrial properties, driven by strong demand for warehouses, distribution centers, and similar facilities.

“The pandemic affected certain real estate sectors more than others,” according to the report. “Every industrial market reported lower cap rates than in [the first half of 2019], reflecting strong investor appetite because of increased e-commerce demand during the pandemic.”

The survey also found that investors were willing to purchase industrial assets at a premium during the first half of the year.