CRE Property Values Slow Their Climb Amid Ukraine Conflict, Rising Interest Rates

Commercial real estate property values barely moved the needle in February as red-hot post-pandemic recovery begins to cool.

Property values increased 0.1% in February, according to Green Street's Commercial Property Price Index, which is created from the net asset values of properties owned by real estate investment trusts. The index weighs the most typical property types, mostly retail, office, multifamily, healthcare and industrial.

"It's been a remarkable run for commercial property, but with interest rates higher, equity markets lower, and now the strains of warfare in Ukraine, investors should expect price increases to slow," Green Street co-Head of Strategic Research Peter Rothemund said in a release.

"Because things were so hot before, and real estate was so cheap versus the bond markets, bidders may push pricing a little more, but for the most part, investors should expect real estate values to stabilize."

Prices have been climbing upward since a 10% decline early in the pandemic, with Green Street noting that values have risen 10% over the past three months and 21% over the past year.

At the end of 2021, analysts at JLL predicted that the beginning of 2022 would see slower growth, only to pick up later in the year. JLL cited the omicron variant for that slow growth, but interest rates and conflict in Ukraine have ramped up to wallop the market, too.

"Although inflation and higher interest rates often concern market participants, CRE has clearly and repeatedly demonstrated its ability to address both and still pass muster as an asset class," the JLL report said. "Therefore, we foresee 2022 as another year of attractive performance from CRE despite the headwinds and headlines."