Such booms and busts naturally contain the seeds of their own reversals. When prices surge, developers rush to add new buildings, eventually boosting supply, slowing further appreciation, and weighing on rents and occupancy. Conversely, when values fall sharply, expanded cap rates and reduced new construction lay the groundwork for the next upswing.
Recovery remains uneven across property types. Apartment, office, and—though to a lesser extent—retail property prices have yet to rebound from the recent round of interest rate hikes. In contrast, the industrial sector experienced a smaller dip and a quicker recovery.
Despite early signs of a turnaround, investors may remain wary given ongoing economic uncertainty. Yet, one important factor stands in their favor: construction costs have surged by 43% from June 2019 to June 2025, according to Bureau of Labor Statistics data, sharply curbing speculative building activity. The result is a marketplace where existing assets—now priced well below replacement cost—offer a financial edge over new developments, even as conversions to new uses sometimes become the most sensible path forward.
Cushman & Wakefield advises investors to approach the new landscape with patience and discernment. A medium- to long-term outlook is essential as the interplay between reduced construction, existing property inventory, and recent price drops sets the stage for a “gradual, insulated CRE recovery in the immediate term.”
In addition, investors must “accept the new reality around tighter yield spreads to benchmark rates.” With compressed spreads between commercial real estate yields and U.S. Treasurys or corporate bonds, returns may be less dramatic in the near term, underscoring the importance of targeting long-term themes and products offering stable income growth.
The firm recommends focusing on “enduring relative value,” particularly through core and core-plus assets in the office and multifamily segments. Shifts in risk tolerance among investors are anticipated, with multi-asset class allocators expected to increase allocations to commercial real estate. Owners with institutional-grade properties—those with strong tenants and longer average lease terms—will likely see heightened demand.
Finally, the report predicts that managers at institutional investment firms may revisit their strategies, becoming more active in portfolio oversight to gain greater control and capitalize on changing market conditions.