CRE Valuations Fall Below Equities for the First Time in Two Decades

While price discovery continues in commercial real estate, the gap between appraised and transacted values has narrowed since late 2023. This signals a stabilization in sentiment and transparency, along with fewer distressed sales.

Opportunities are Broader Today

Many institutions remain underweight CRE following the drawdown, yet private values bottomed in late 2024 and an approximate 5% price growth is expected in 2026, suggesting the cycle may be turning just as capital remains sidelined, MetLife reported.

“Real estate investors have a much broader opportunity set today than they did just a few years ago, which allows capital to flow directly to sectors aligned with U.S. megatrends such as AI adoption, demographic shifts and housing affordability,” Michael Steinberg, senior director of real estate research at MetLife Investment Management, told GlobeSt.com

When mapping those themes to real estate, sectors such as data centers, seniors housing and manufactured housing stand out as likely early beneficiaries of the next leg of the cycle, he said and it’s already beginning to show up in private-market benchmarks such as the NCREIF Property Index (NPI).

The NPI is a quarterly benchmark that tracks the performance of over 12,000 unleveraged, income-producing commercial properties (totaling $904 billion in value) held by tax-exempt institutional investors.

“Geographically, we think investors are still underestimating the power of supply constraints in major gateway markets, which has become more important as U.S. population growth has slowed,” Steinberg said.

“Cities such as New York, San Francisco, and Chicago have been deprioritized in favor of high-growth Sun Belt metros, but in residential, especially, limited new supply creates a much faster path to rent growth and price recovery as capital re-engages.

Real estate equity yields are screening as attractive relative to corporate bonds and equities and pricing appears more aligned with long-term fundamentals.

MIM screens 21 property types monthly for shifts in relative value, using a framework that blends real-time spot-market pricing collected from MetLife’s regional transactions teams with public-market signals such as REIT option-implied volatility and other risk indicators.

“The goal is to understand where pricing is misaligned with underlying risk, allowing us to spot opportunities before capital flows do,” he said.

Based on that work, the most compelling risk-adjusted opportunities today are in seniors housing, infill industrial, medical office and net-lease retail.

Each of these sectors has at least one of the following traits: stable or improving fundamentals, a meaningful value reset or an outcome distribution that is not reflected in the sector’s risk premium, he said.

Transaction Values Recovering from 2023 Lows

Transaction volumes are gradually recovering from 2023 lows and recent trades above appraisal signal improving price discovery.

Appraised values are likely to continue rising, according to the report. Property price value growth turned positive in 4Q24, and that momentum continued into 2025. MIM believes there is more upside risk than downside to the consensus forecast.

“In private markets such as commercial real estate, investors accept less transparency and liquidity in exchange for stronger relative value, which means prices and appraised values can temporarily diverge during rapid market shifts when buyer and seller expectations are far apart,” Steinberg said.

“After the 2022 downturn, industrial and multifamily were the first sectors where liquidity returned, and buyer-seller expectations converged, allowing pricing and appraisals to realign. We’re now beginning to see that same normalization process take hold in office, albeit unevenly and assetbyasset.”

He said that roughly half of the office assets MIM investors sold over the past year traded above their most recent broker opinions of value and appraisals, which suggests that price discovery is improving and that private values are catching up to market reality, even in the least liquid sectors.

Office Remains Most Distressed

Perhaps to no surprise, office remains the most distressed sector. “But we’re careful not to treat it as monolithic,” Steinberg said.

“Pricing for A-plus office has begun to move aggressively in real estate debt markets. There are also a handful of cities where office fundamentals today are arguably stronger than they were pre-COVID.”

Miami is a clear example, benefiting from sustained population inflows, job growth and corporate relocations.

“As a result, investors who completely write off office risk could be missing some of the strongest relative opportunities of 2026,” according to Steinberg.

The national office vacancy has finally turned the corner. The rate is 18.8%, 20 bps below its peak. In 3Q 2025, office net absorption totaled +14.6 million SF nationally, the highest level in four years. 4Q 2025 office net absorption was +3.8 million SF.

Office vacancy will steadily decline over the next two years, according to the report.

U.S. cities are experiencing divergent performance, Steinberg said. Markets such as Fort Lauderdale, Miami and Tampa have fully recovered from the COVID downturn, while Los Angeles and Seattle are still struggling.

“Class A+ assets in healthy markets offer attractive risk-adjusted returns today,” he said. “Values for Class B and C assets may continue to decline.”