The U.S. commercial real estate market is experiencing a two-tier recovery, with high-value properties in major markets posting their sixth consecutive monthly gain, while the value of smaller assets in secondary markets is tumbling.
That's according to the November results for the CoStar Commercial Repeat Sale Indices, a monthly report that tracks when previously sold properties trade again in a process called a repeat sale.
The pricing divergence underscores how institutional investors and wealthy buyers continue to snap up premium office buildings, retail centers, industrial facilities and apartment complexes in core markets, driving prices up 0.4% in November. That trend comes as mom-and-pop landlords and minor investors face deteriorating values on lower-tier properties in less prominent locations.
The commercial real estate sector is experiencing its lowest level of construction since 2013 and the steepest decline in occupied space since the Great Recession, according to CoStar data. Commercial nonresidential buildings across the country are projected to lose a net 100 million square feet of tenants in 2025.
Whether the pricing trends hold for the entire fourth quarter will be more evident as the year closes, according to Chad Littell, national director of U.S. capital markets analytics for CoStar and author of the report.
"Total sales volume for November was up more than 10% year over year," Littell said. As for the fourth quarter, "there should be a lot of deals coming to light in the final days of December, so we won't know the full story until late January."
Lower borrowing costs
November's price increase for more expensive, large-market properties comes as the U.S. Federal Reserve has cut interest rates three times since September, dropping borrowing costs to their lowest point since 2022. Commercial property professionals say lower rates spur more sales.
The CCRSI's value-weighted U.S. Composite Index, more heavily influenced by expensive deals in core markets, rose for the sixth straight month, climbing 0.4% over October. The index increased 1.1% over the prior quarter but declined 1.3% during the 12 months ended in November.
Meanwhile, the equal-weighted U.S. Composite Index, reflecting the more numerous but lower-priced property sales typical of secondary markets, fell 0.9% in November. The index declined 0.7% over the prior quarter and was flat compared to November 2024.
For the first time since 2013, new property openings in the fourth quarter fell below 100 million square feet, CoStar data shows. Completions across the three major property types — office, retail and industrial — are projected to reach 486.3 million square feet in 2025, 34.2% lower than in 2024.
Net absorption, or the difference between tenant move-ins and move-outs, is projected to give back 100 million square feet in 2025, the most deeply negative result since 2009, according to the CCRSI report. However, demand improved in the third and fourth quarters.
This month's CCRSI is based on 1,049 repeat-sale pairs in November and 335,876 repeat sales since 1996.