This downward adjustment in values, CBRE argues, has created compelling investment opportunities. The firm compared price-to-earnings ratios for commercial real estate and equities, illustrating that from 2006 through the pandemic in 2020, real estate was relatively expensive. Equities had enjoyed a prolonged growth phase, but their values dropped sharply with the onset of higher tariffs. Even then, commercial real estate remained attractive, offering investors the prospect of better value and future upside.
Looking ahead, CBRE expects only modest compression in capitalization rates. Long-term interest rates are unlikely to return to previous lows, continuing to exert financial pressure. As a result, future returns will likely come from net operating income rather than property value appreciation. This shift will make due diligence even more critical, as different asset types and locations will perform unevenly in the current cycle.
Monitoring developments in trade with China and the impact of tax policy will be essential, as these factors could help offset potential negative macroeconomic effects. Ultimately, those who are prepared and act quickly are likely to achieve the best returns during this business cycle. CBRE believes that the current year presents an attractive environment for commercial real estate investment, with opportunities favoring the nimble and well-informed.
