Commercial Real Estate: Why One of the Most Challenging Headlines Is Now One of the Cheapest Assets

Ares Management

William Kieser

Research

12 Pages

Ares Management explains why commercial real estate may now offer one of the most attractive risk-reward setups after years of negative headlines. The paper argues that steep valuation declines, income yields that rival investment-grade credit, and historically weak capital formation have combined to create an unusually compelling entry point, even as investor sentiment remains cautious.

Key Takeaways

Valuations Reset: U.S. CRE values remain 15.8% below 2022 peaks, with office down 34.9% and apartments 19.3%, creating rare historical discounts.
Income Looks Competitive: Core institutional CRE yields about 4.72%, exceeding the S&P 500 earnings yield (3.40%) and approaching investment-grade bonds (4.84%).
History Favors Drawdowns: Markets 15%+ below prior peaks historically delivered 7.1% average annualized 5-year price appreciation versus 3.7% during normal periods.
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