What Today’s Office Building Market Trends Mean for Commercial Building Owners and Buyers
Helping Investors Navigate Rising and Falling Prices Through Property Assessments, Cost Opinions, and Accessibility Insights
As a commercial property inspector, I’ve seen firsthand how shifts in the real estate market impact the decisions investors and owners must make. A recent CoStar Group report shows a clear split in the commercial real estate market: smaller, lower-priced properties are holding up better than their more expensive counterparts. Let’s break this down in simple terms and discuss how it affects what I do — inspecting properties, estimating repair costs, and checking for accessibility.
Market Snapshot: Small Deals Are Holding Strong
In the first quarter of the year, commercial property prices overall showed mixed signals. Large, high-priced property sales in major cities dipped slightly (about 0.5%). But smaller deals — think less expensive buildings in secondary or tertiary markets — actually went up by 2.6%. That’s a noticeable bounce after three straight quarters of decline.
For those investing in smaller properties, this is encouraging. The uptick means buyers might be seeing more stability and value in these smaller investments, possibly because they’re less risky or easier to finance and maintain.
Office Buildings: A Mixed Bag
Office buildings continue to struggle overall, especially big, expensive ones in major cities. These dropped in value again this quarter, with prices down 2.5% since last quarter and 9.2% over the past year.
But not all office buildings are following the same path. In places like Boston, New York, Los Angeles, and other major metros, prices are starting to show signs of improvement — especially for smaller, lower-priced offices. In fact, prices in these small-market office properties are starting to creep up again, with a 1.9% rise this past quarter.
From a property inspector’s perspective, this is where Property Condition Assessments (PCAs) are incredibly valuable. With the market slowly rebounding, especially in smaller office spaces, knowing the true condition of a building — the roof, HVAC, electrical systems, and more — gives buyers a clearer picture of what they’re getting into.
Multifamily and Industrial Buildings: A Bit of a Rollercoaster
Multifamily properties (like apartment buildings) in smaller markets didn’t fare so well. Prices dropped 2.1% last quarter and have fallen nearly 5% over the past year. That’s worth paying attention to if you’re investing in these types of properties.
Industrial buildings (such as warehouses and manufacturing spaces) saw a 1% drop in high-dollar deals but remained up 2.5% year-over-year. For smaller industrial properties, prices dropped a little (1.1%) this quarter but increased 2.9% over the year.
Retail buildings (stores, shopping centers) have remained pretty steady, with minor price bumps.
This is where an Opinion of Cost becomes essential. In any of these sectors — whether prices are rising or falling — it’s critical to understand the cost of repairs or upgrades before you buy. I provide detailed estimates for major systems that might need replacing or repairs in the near future, so you’re not blindsided after closing the deal.
Accessibility Still Matters
As the market changes, Accessibility Inspections continue to be overlooked — but they shouldn’t be. If a property is outdated or needs ADA-compliance upgrades, those costs can add up quickly. Whether you're buying a retail space, apartment building, or office, an accessibility inspection can help you stay compliant and protect your investment.
Final Thoughts
The commercial real estate market is clearly experiencing a split. High-dollar deals in big cities are softening, while smaller, less expensive deals in secondary markets are showing promise. No matter where your property falls, it’s essential to do your homework. That means getting a Property Condition Assessment, a solid Opinion of Cost, and, if needed, an Accessibility Inspection before you finalize your deal.
As a commercial inspector, my job is to help you make informed decisions by giving you an honest look at the building’s condition and helping you avoid unexpected costs later. If the market’s changing, your due diligence process should adapt too.
Property Condition Assessments
Oklahoma, Arkansas, Kansas, Missouri
Questions Answered in This Article
How are commercial property prices shifting in 2024?
Why are lower-priced commercial properties in small markets performing better than high-priced ones?
What’s the difference between value-weighted and equal-weighted property indices?
Which property sectors are seeing the most price changes?
Is the office property market still declining, or is there hope for recovery?
Why is a Property Condition Assessment (PCA) essential in today’s market?
How can an Opinion of Cost help investors avoid financial surprises?
What does an Accessibility Inspection involve, and why does it matter?
How do inspection services help buyers navigate changing market conditions?
What should investors know before purchasing office, multifamily, industrial, or retail properties?
How can buyers use inspection results to negotiate or make better decisions?
What risks come with skipping thorough inspections in a fluctuating market?
How are inspection needs different for small-market versus large-market properties?
Bibliography
CoStar Group. (2024, April). CoStar Commercial Repeat-Sale Indices: April 2024. Retrieved from https://www.costar.com/
CoStar Group. (2024, April 25). Small U.S. markets lead property price growth. Retrieved from https://www.costar.com/article/17509224/small-us-markets…