Six Major Cities Forecast to See a Significant Plunge in Commercial Real Estate Values by 2025

Six major cities are projected to face a significant plunge in property values by 2025. Factors like declining office demand and broader market health concerns contribute to this trend. This article delves into these forecasts, the reasons behind them, and their potential impact on the commercial real estate sector.


-Commercial real estate values are in trouble, with markets projected to see a deep slump of up to 40% in certain cities as indicated by Capital Economics. 

-This comes as the demand for office buildings wanes due to continued work-from-home practices.

-Remote work is a major contributing factor to the fall in commercial real estate values nationwide

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According to recent research from data analytics firm Capital Economics, commercial real estate prices in six significant US markets are poised for substantial reductions

Major coastal markets hit hard.

The cities in question include major markets like San Francisco, Chicago, New York City, Los Angeles, Boston, and Washington, DC. San Francisco, in particular, is anticipated to bear the brunt of the impact. Commercial real estate values in the city are predicted to plunge by 40%-45% between 2023-2025.

Chicago and New York are not far behind, expecting drops of around 30%-35%. Los Angeles and Washington are set to see reductions in the 25%-30% range. Boston’s commercial real estate market is predicted to decline by approximately 25%.

This ominous news extends to many other Western metros, where similar property valuation drops are anticipated, such as Seattle, Portland, and Denver. Southern cities including Miami, Dallas, and Atlanta are projected to experience a fall in values, albeit lesser at around 20%.

See how San Francisco’s commercial property sector is dealing with rising defaults.

Lower office demand is a major factor.

Behind these steep declines is the diminished demand for office buildings. The rise of remote work and a weakening labor market have led to a significant reduction in the need for physical office spaces.

The growth in office-based jobs in all the aforementioned “major markets” has been lackluster this year, except for Boston. Capital Economics estimates this growth to “limp” below a 1% rate over the coming five years.

Additionally, the situation is further complicated by issues such as exorbitant rents, commuting and housing costs, and a high proportion of tech jobs in these metropolitan cities. Consequently, the layoffs pervading the tech sector have indirectly affected office space demand.

With the decline in demand, office vacancies in these six cities are forecast to surge to nearly 19% by the end of 2025, the research firm stated.

Is the rate hike pause a respite for commercial real estate?

Experts are concerned about the health of the broader commercial real estate markets.

Several experts have voiced concerns over the volatile commercial real estate sector. Struggling demand for office properties post-pandemic and anticipated credit condition contractions pose potential challenges to commercial real estate assets.

Morgan Stanley’s forecast suggests a 40% crash in commercial real estate prices, an even more severe downturn than the 2008 crisis. These economic conditions and their effects on the commercial real estate market underscore the critical need to diligently monitor these indicators to determine commercial property values accurately.

July 9, 2023