Healthy correction or crisis tipping point? Commercial real estate prices are down 18% from their peak
U.S. commercial real estate prices have fallen sharply from their 2022 highs, deepening concerns about the sector’s health as vacancy rates climb and financing conditions tighten.
According to the Commercial Property Price Index shared by strategist Charlie Bilello, commercial real estate values are down roughly 18% since 2022.
That downturn began around the same time the Federal Reserve started raising interest rates to combat inflation — moves that have sharply increased borrowing costs and pressured commercial property valuations.
The data points to a meaningful correction in the commercial real estate market. While this decline is less severe than the crash that followed the 2008 financial crisis, it underscores how sensitive the sector remains to shifts in interest rates, credit availability, and investor sentiment.
Worldwide Steel Buildings, a manufacturer of steel building kits used for warehouses, industrial facilities, and agricultural structures, described the market as being in “crisis” mode, citing Moody’s Analytics data showing surging office vacancy rates.
Office vacancies have been rising steadily for years, reaching 20.7% in the second quarter of 2025, a new all-time high.
At the same time, the delinquency rate on office-backed commercial mortgage-backed securities (CMBS), a measure of loans tied to office buildings that are late or in default, also hit a record 14.26%.
That figure suggests growing stress among property owners struggling to refinance or lease out underused office space.
Cracks beyond office space
While most of the spotlight in commercial real estate has focused on struggling office properties, the challenges run much deeper.
According to MSCI Real Capital Analytics, delinquencies across all commercial properties rose 23% year-over-year as of March, signaling that stress is spreading beyond just the office sector.
A report from the Federal Deposit Insurance Corporation (FDIC) earlier this year also flagged growing risks in the multifamily housing segment.
The agency noted an increase in past-due and nonaccrual loans, which are so far behind on payments that banks have stopped counting interest as income. In other words, these loans are considered unlikely to be repaid under current terms.
Some of these risks were flagged as early as mid-2024 in the Harvard Business Review, where economist Dana M. Peterson warned that commercial real estate was “heading toward a crisis” due to more than $1 trillion in loans coming due over the following two years.
“The damage could metastasize into a full-blown financial crisis if scores or even hundreds of small- and midsize commercial banks fail simultaneously,” Peterson cautioned.
While a widespread banking crisis has so far been avoided, many smaller institutions remain heavily exposed. According to The Conference Board, a significant number of regional and community banks hold commercial real estate loan portfolios that far exceed their risk-based capital levels.