Gap Between CRE Sales and Appraised Value Narrows in 1Q 2025: Webinar Highlights

On May 29, SitusAMC’s Real Estate Valuation Services (REVS) team hosted its latest webinar analyzing current valuation dynamics and sector performance across the NCREIF NFI-ODCE index. Drawing on transaction data, appraisal trends and net operating income (NOI) performance, the panel provided an in-depth look at key market shifts. The webinar, “Interpreting the Data: Current Valuation Trends and State of the CRE Market,” featured Brian Velky, Global Head of REVS, and Managing Directors Andrew Sabatini and Dane Anderson. Here are key highlights: 

1. Price and Value Continue to Converge—But at Lower Volumes 

Transaction activity slowed sharply at the start of 2025, falling well below typical first-quarter levels. Despite this decline, there is cautious optimism: the pricing gap between market sales and appraised values has narrowed from 28% to around 22%. Sales prices are now within 4% to 5% of NCREIF values, compared to a 10% gap in Q4 2024. While lower volumes temper confidence, past patterns suggest that alignment in low-volume quarters may still indicate sustainable trends. 

2. Industrial Values Approach Peak Levels 

Industrial remains one of the strongest-performing sectors. Prices are now within 5% of peak values, with cap rates and NOI trends showing underlying strength. Pro forma appraisal cap rates held steady at 3.9% quarter over quarter, while transaction cap rates declined—partly due to limited sales and a growing emphasis on tenant credit quality. Despite softening rents in Southern California and tariff-related uncertainty, the sector appears to have bottomed and is well positioned for long-term growth. 

3. Office Sees Diverging Trends Between Tiers 

Office remains bifurcated. Cap rates just below 6% reflect ongoing NOI declines and persistent vacancies, yet quarter-over-quarter value gains (excluding CapEx) were observed among top-tier assets. Transaction cap rates surged past 9%, but sales volume remains limited. Encouragingly, leasing momentum has picked up—especially in premium assets and markets like New York City. Some owners are reconsidering hold strategies rather than exiting to reduce allocations, signaling a potential shift in sentiment. 

4. Apartment Sector Faces Near-Term Volatility, Long-Term Tailwinds 

Apartments mirrored industrial in many ways, with steady pro forma cap rates (~4.75%) and a slight uptick in T3 cap rates (4.37%). However, the average transaction cap rate rose 100 basis points—though with only five ODCE property sales, this is likely statistical noise rather than a pricing reset. Limited new construction starts and persistent rate pressures may actually support apartment values moving forward. Vacancy is projected to decline to 3.5%–4% by 2027, fueling optimism for NOI and rent growth. Moody’s projects annual rent increases nearing 5% by 2029, supporting strong unlevered IRRs for the sector. 

5. Retail Stable but Highly Segmented 

Retail continues to deliver consistent NOI growth and stable cap rates, but transaction data remains volatile due to the sector’s fragmentation. A 5% transaction cap rate in Q1 2025 contrasts with 6.5% in Q4 2024, largely reflecting strength in the grocery-anchored sub-sector. While trade policy remains a background risk, particularly for properties reliant on percentage rents, retail's core fundamentals appear solid for now—especially in well-leased, necessity-driven formats. 

6. NOI Growth Highlights Sector Divergence 

NOI trends show clear differentiation. Office remains challenged, with one-year NOI growth nearing –8% and occupancies slipping sharply. By contrast, industrial continues to post strong growth, driven by mark-to-market rent dynamics. Retail and residential both exhibit stable and rising NOI trends, reinforcing investor conviction in those sectors. Storage also showed strong NOI growth in the past year due to seasonality but is expected to soften materially through 2025. 

7. Cap Rates Flatten Across Property Types Amid Policy Uncertainty 

Appraisal cap rates have largely flattened across sectors, reflecting a holding pattern in capital markets as investors await clarity on trade and long-term economic policy. This steadiness mirrors market sentiment, with participants anticipating continued income growth but limited compression in risk premiums. Importantly, cap rate stability in the face of shifting fundamentals reinforces the need for careful asset-level underwriting and strategic tenant assessment. 

Looking Ahead: Fundamentals Over Financial Engineering 

The Q1 2025 data paints a picture of cautious optimism. Price and value are converging, industrial and apartment sectors remain robust, and even the office sector shows early signs of stabilization at the high end. Still, transaction volumes and macroeconomic uncertainty warrant careful monitoring. For investors, success in this environment will depend on discipline, tenant quality, and a deep understanding of asset-specific fundamentals—especially as NOI, not cap rate compression, drives returns in the quarters ahead. 
 
Watch a recording of the webinar or download the slides here. For more information on SitusAMC’s Real Estate Valuation Services, visit our website.