Commercial real estate values are changing, and their effects extend far beyond headline figures. For middle-market investors, developers, and managers, declining real estate valuations can create challenges and opportunities. Securing debt renewals may become more challenging. Estate and succession plans might require adjustments. At the same time, falling values can present new opportunities — such as property tax appeals and more attractive deal flow.
The key question isn’t whether values are declining, but what those shifts imply for your strategy.
Are Real Estate Valuations Really Declining?
According to Green Street’s Commercial Property Price Index (Sept. 2025), most sectors saw modest gains over the past 12 months. However, compared to peak levels in 2022, every sector has experienced declines in real estate valuations, with some categories facing significant drops.
| Past 12 Months | 2022 Peak | |
|---|---|---|
| All Property | 3% | -17% |
| Core Sector | 3% | -19% |
| Apartment | 2% | -19% |
| Industrial | 2% | -14% |
| 6% | -7% | |
| Office | 2% | -36% |
| Strip Retail | 6% | -8% |
| Data Center | 5% | -12% |
| Health Care | 5% | -14% |
| Lodging | -1% | -10% |
| Manufacturing Home Park | 2% | -13% |
| Net Lease | 0% | -18% |
| Self-Storage | -4% | -24% |
What’s Driving the Decline?
Higher interest rates and slower rent growth are the main factors. From March 2022 to July 2023, the Federal Reserve raised rates by 525 basis points before cutting 100 points in 2024. The Fed has since lowered rates by an additional 25 basis points recently, with analysts expecting further reductions later in 2025; however, today’s rates are still much higher than when many loans originated.
Because commercial loans usually require refinancing every five to 10 years with balloon payments at maturity, borrowers with loans from 2015 or 2020 are now facing a notably different rate environment.
Challenges of Declining Real Estate Valuations
Declining real estate valuations present challenges, but two are the most critical:
- Refinancing risk: As today’s primary concern, owners and borrowers with maturing debt may struggle to secure favorable — or any — terms due to rising interest rates and stricter lending standards. This risk affects dedicated real estate firms as well as operating companies that hold property on their balance sheets.
- Investment risk: CRE debt investors, whether professionals or retail, must adjust their strategies when real estate valuations weaken. Declines often cause paper losses that can quickly become realized losses if values don’t recover or properties are sold under pressure.
Case in Point
The $1.74 billion Manhattan skyscraper at 825 8th Avenue, Worldwide Plaza, was recently valued at only $345 million after major tenants left. Bondholders who once held AAA-rated debt now face losses of about $53 million. Lower-ranking debt holders are likely to be entirely wiped out.
Opportunities in Declining Real Estate Valuations
Lower real estate valuations aren’t only a risk; they can also create opportunities for clients who act strategically.
Property Tax Appeals
A drop in market value should result in lower tax bills. Local assessors rarely make reductions on their own, but they can’t ignore a well-supported appeal backed by data. Now might be the ideal time for clients to contest assessments.
Deal Flow
Falling real estate valuations create opportunities for new deals. Motivated sellers — often facing refinancing risk — may be more open to negotiations. For buyers, this can mean better return prospects and access to assets that were previously out of reach.
Estate and Succession Planning
Because illiquid assets, such as real estate, are valued at fair market value (FMV) at death or six months later, timing is essential. Lower real estate valuations can reduce an estate’s taxable size, helping high-net-worth clients maximize today’s $13.99 million federal exemption ($27.98 million for married couples). This can make estate transfers more tax-efficient before potential changes to exemptions.
Why Real Estate Valuation Matters
Accurate real estate valuations are more than just numbers on paper. They inform important decisions, including:
- Tax and business planning
- Capital assessment and financing strategies
- Buy, sell, or hold decisions
- Refinancing and debt management
- Estate and legacy planning
Lenders, counterparties, and other stakeholders also depend on real estate valuations to assess asset risk, evaluate client relationships, and determine future terms.
Take Action
Declining real estate valuations present both challenges and opportunities. Understanding how these shifts affect refinancing, investment decisions, property taxes, and estate planning can help you make informed, strategic choices. Our team is here to help you navigate the market and identify solutions tailored to your needs. Connect with a member of our team today to discuss how these trends may impact your real estate strategy.
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