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Commercial real estate value shifts toward net operating income as rates stay high

U.S. commercial property transaction volume rose 31% year over year to $293B in the first half as buyers became less focused on discounted deals.

Reported · Written up by our desk · Commercial

Bisnow reports that the window for bargain commercial property purchases is closing as valuations hold steady and rate relief is pushed further out, with rising bond yields tightening financing conditions. Across midyear research from firms including JLL, UBS, Principal Asset Management, and Newmark, analysts said the next phase of the cycle is more likely to reward property operators who can grow net operating income, rather than opportunists targeting deep discounts. JLL’s Lauro Ferroni said investor conversations increasingly center on how to operate assets to generate NOI.

UBS noted that the differentiator between winners and losers is increasingly earnings delivery instead of valuation recovery. Principal Asset Management similarly argued that in a higher interest rate environment, cap rate compression is unlikely, so owners may need to shift their approach to keep growing asset values.

The report also points to data suggesting an early recovery in commercial real estate sales, with distress still present but deeply discounted deals held back by widely available capital and lenders willing to extend loans if landlords contribute cash. CBRE survey results cited by Bisnow show fewer investors expect cap rate compression than last year, while U.S. transaction volume in the first half of the year rose 31% year over year to $293B.

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