U.S. commercial real estate prices climbed in July, marking the first monthly gains since spring as institutional investors come back to a market that has struggled for more than two years.
After months of declining deal values following the Federal Reserve's 11 interest rate hikes in 2022 and 2023, the commercial property market showed signs of stabilization, according to monthly CoStar Commercial Repeat Sale Indices data. High borrowing costs had previously deterred a number of buyers, leading to a prolonged downturn that began in mid-2022.
The rise in prices indicates “bigger buyers such as institutional investors, pension funds, REITs and large investment firms are slowly returning,” said Chad Littell, national director of U.S. capital markets analysis for CoStar and author of the CCRSI report. The report tracks when previously sold properties trade hands again in a process called a repeat sale.
An indicator of high-dollar trades common in the largest U.S. markets, the value-weighted U.S. Composite Index of the CCRSI, jumped 1.3% in July — the first gain in five months — suggesting that buyer confidence may be returning.
Year-over-year losses slowed, with prices falling just 1.1% from July 2024, an improvement from steeper declines in June. The index remains 21.4% below its July 2022 peak.
Secondary and tertiary markets showed modest gains. The equal-weighted composite index, reflecting less expensive properties more common in small markets, rose 0.3% in July. Those markets posted a 0.7% annual gain and sit just 1.9% below March highs.
Monthly transactions dip
Sales activity in July painted a nuanced picture of market conditions. While overall transaction volume dipped slightly from June, annual comparisons showed strong growth.
Sellers completed nearly 1,500 repeat sales in July valued at $10.7 billion, down 4.4% from June but up 9.1% from the previous year. The monthly decline reflected fewer small-dollar transactions as individual investors remained cautious.
For the 12 months ended in July, total transaction volume hit $133 billion, representing a 27% increase from the prior year. Investment-grade properties drove this growth, with a 33% annual increase.
Property owners meanwhile showed increasing patience to complete a sale, with more choosing to wait for better market conditions, the CCRSI report suggested. The withdrawal rate — the percentage of properties pulled from the market before selling — climbed to nearly 27% in July, marking the fifth consecutive monthly increase.
“This may suggest that sellers believe prices will be higher in the future and are willing to wait to realize those potential gains,” Littell said.
Sellers in July accepted an average 92.7% of asking prices, unchanged from last year.
Distressed sales remained limited at 3.4% of all repeat transactions, according to the report. Investment-grade distressed deals accounted for 7.7% of that segment's sales, while general commercial distressed properties made up 2.6% of trades.
The CCRSI data covers 1,482 sale pairs in July and 329,377 repeat sales since 1996, providing the market's broadest measure of commercial real estate pricing trends.