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  • Kelly White

High Borrowing Costs Weigh on Property Prices: A Closer Look at October's CRE Market Trends

In the complex and ever-evolving landscape of commercial real estate (CRE), understanding market trends is crucial for investors and professionals alike. According to a recent analysis by CoStar, CRE sale prices in October have seen a notable decline. This trend aligns with the yearlong pattern of escalating borrowing rates, highlighting the intricate relationship between financial markets and real estate prices.

Market Trends According to CoStar's Analysis:

CoStar's comprehensive analysis uses two key indices to track the movement in the CRE market: the Value-Weighted U.S. Composite Index and the Equal-Weighted U.S. Composite Index. The former focuses on large property sales in major cities, while the latter represents smaller, less expensive property deals. Both indices reported significant declines in October, with the Value-Weighted index falling by 1.4% from September, culminating in an 8.7% decrease over the past 12 months. Similarly, the Equal-Weighted index also experienced a 1.4% drop in October, showing almost no change year-over-year.

Influence of Interest Rates:

Chad Littell, CoStar’s national director of U.S. capital markets analytics, points to the fluctuations in the U.S. 10-year Treasury yield as a key factor influencing these trends. With the yield reaching a peak of 4.9% in October, the highest for the year, it's evident that these changes have a direct impact on commercial real estate lending and, consequently, property prices. Littell predicts that the pressure on prices will persist, potentially leading to a decrease in transaction volumes as the year progresses.

Segment-Specific Downturn:

The downturn in the CRE market has been uneven across different segments. Investment-grade properties, often considered a bellwether for the broader market, have seen the most significant decline. Transactions in this segment have plummeted by 60.3%, marking the largest year-over-year price decrease since March 2010. The multifamily sector has not been immune to these trends either. The value-weighted multifamily index has dropped 19.8% since its peak in July 2022, indicating a substantial retraction in this once-buoyant sector.

The Slippery Slope for Investment-Grade Prices:

October was particularly challenging for investment-grade prices, witnessing the largest year-over-year drop since March 2010. The equal-weighted index for these assets slipped 1.5% in October and fell 12.1% over the past 12 months. In contrast, the general commercial sub-index, consisting of smaller, lower-priced assets, slipped 0.9% in October but showed modest gains of 3.1% over the same period.

The surge in the 10-year Treasury rate to 4.9% in October has had a pronounced impact on the CRE market. This rise in yields is particularly affecting the investment-grade property segment, which is facing the most significant price declines. As we look ahead, the expectation is for these trends to continue, with increased borrowing costs exerting downward pressure on property prices.

In these times of market volatility, staying abreast of the latest trends and understanding their implications is more important than ever. For those seeking guidance or assistance in navigating these complex market conditions, Cadre Healthcare Real Estate Advisors offers expert consultation and strategic insights to help you make informed decisions in the dynamic world of commercial real estate.

Krone Weidler, Founder & Principal

Cadre Healthcare Realty Advisors

1095 SE 177th Place, Suite 404-M14

Summerfield, FL 34491

C: (813) 842-2365

O: (866) 355-3594


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