Individual Investors Begin Pullback, Slowing Commercial Real Estate Price Gains

[Sanjeev Advani]

In July, the U.S. commercial real estate market experienced mixed results, with property price gains slowing, particularly among individual investors. High interest rates and dwindling capital reserves have led smaller investors, who have long driven the market, to pull back.

Shift in Investor Behavior For years, individual investors fueled price growth through small-dollar deals, but rising interest rates have made them less aggressive. As a result, properties are sitting on the market longer, signaling a slowdown. Chad Littell from CoStar notes that while institutional investors adjusted their strategies early in response to rate hikes, individual investors have only recently begun scaling back.

July Sales Report According to CoStar’s July Commercial Repeat-Sale Indices (CCRSI), the equal-weighted U.S. composite index, tracking smaller market sales, showed only a 0.2% price increase from June, with prices down 0.7% year-over-year, marking the first annual decline since 2012. Small-dollar deals have seen the slowest growth, reflecting a cooling market.

Outlook: As individual investors pull back, market dynamics are shifting. Littell expects the slowdown to deepen, with annual appreciation likely to dip further into negative territory by year’s end, signaling the end of rapid price growth in commercial real estate.