It’s been a wild ride for commercial real estate the past few years.
That’s what my trusty spreadsheet found when it reviewed July’s Green Street investment performance report for 12 slices of “institutional” properties — primarily large investments controlled by major property owners.
Overall, commercial real estate nationwide is enjoying a bit of a revival after a four-year slump. Green Street’s main property index was up 5% in the past year. But price swings were not uniform.
Consider this odd scenario from the past 12 months of valuations: Apartments, thought to be in short supply, were the worst performer. Malls, seemingly a shopping relic, are the best.
By this math, apartment values were flat in the year ending in July. Why is “unchanged” so disappointing?
Well, apartments were the only commercial real estate niche that saw no value gains over those 12 months.
Real estate investors of all stripes were pummeled after the Federal Reserve turned off the cheap money machine in 2022. It wasn’t just pricier loans that hit apartment owners.
Overbuilding tied to a misreading of the pandemic’s rental frenzy left numerous units empty. That miscalculation led to flat or discounted rents in many markets, especially for the high-end units the big operators like to build and manage.
Equally painful is the fact that operating costs, from insurance to repairs, have soared. Capitol Hill’s rough 2026 battles over housing policy also stirred uncertainty among residential real estate investors.
That’s the backdrop behind a 19% tumble in apartment values since real estate’s 2022 peak, according to Green Street’s math. It was the third-largest drop among the 12 niches tracked.
So, what fared worse than apartments since 2022?
Office buildings were down 34%, still devastated by the work-from-home movement.
And self-storage facilities were down 22%, hurt by the steep slowdown in home sales, a key driver of storage locker rentals.
Shopping the winners
The past year’s best real estate investments, according to Green Street, could be seen as a signal of hope for any investor betting on a reversal of fortunes.
Topping the list? The mall. Yes, those shopping centers everyone thought were on life support are making a comeback.
Green Street says mall values rose 12% in the past year – the top result among the 12 niches tracked. And mall values are 3% above the 2022 peak, also the industry’s top results as the only price-gaining niche in these four years.
Why? Many struggling malls have closed or been torn down. At the same time, shoppers with money in their pockets are getting bored with online shopping and heading back to brick-and-mortar stores. That shift is helping malls that offer a good mix of shops, restaurants and entertainment.
This retailing revival, at least in investors’ eyes, is reinforced by the second-best performer on Green Street’s rankings: strip malls, the smaller cousins of the giant shopping hubs.
Neighborhood shopping centers saw their values climb 9% over the past year and are now just 2% shy of their 2022 high. Strip mall owners have bounced back by filling empty spaces with all kinds of services, from doctor’s offices to gyms to beauty salons.
Not all investors in retail locations have enjoyed a bounce-back from their lows.
Then there are the so-called “net lease” properties, primarily the standalone shops you see in shopping center parking lots. These real estate bets had the second-worst performance this year.
Because these properties depend on just one tenant, they’re especially sensitive to economic ups and downs. The slump in drugstores, for example, has really hurt this group.
So, net-lease real estate values were up only 1% in the past year – second-worst among the 12 niches – and have tumbled 18% from the 2022 peak – the fourth-worst dip.
The competition
Commercial real estate overall has greatly underperformed other asset classes over the past four years. In fact, this period was the industry’s darkest days since the Great Recession.
Green Street’s tally showing a 13% decline in industry-wide value since its 2022 peak has added sting, given that inflation rose 13% in that same period.
Look, an investor could have taken no risk and earned 19% over the past four years by owning 1-year Treasury bills.
It’s not just institutional real estate. Individual homeowners also saw weak results across America, too. Zillow’s broad U.S. home-price index was up just 5% since mid-year 2022.
And it’s hard to ignore the stock market’s returns over this period.
Wall Street’s flagship S&P 500 index rose 91% since July 2022, while the tech-heavy NASDAQ Composite rose 120%.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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