Commercial Real Estate Cheaper Than Stocks for First Time in 20 Years

Min 1:

Commercial real estate property stocks are trading at their biggest discount to U.S. equities in 20 years according to CRE Daily analysis.

After several years of sharp declines and underperformance, U.S. commercial real estate is starting to look like a bargain as average property values remain down double digits from 2022 peaks.

The gap between stock market valuations and REIT valuations has widened dramatically. REITs returned just 2.5% in 2025 while the S&P 500 surged 17% according to Cohen & Steers data.

That massive underperformance created the valuation disconnect now presenting opportunities for long-term investors.

"These will close, and one or both could happen in 2026. If they do, we expect REITs to outperform based on our own historical analysis and their ongoing strong operational performance and balance sheets," Nareit, the REIT industry association, said in their 2026 forecast.

The combination of fair valuations, rising construction costs, and limited new supply is making existing assets—especially in retail and senior housing—more attractive.

Some long-term institutional investors are beginning to take another look at the beaten-down sector despite lingering pain from assets now worth less than they paid.

Min 2:

The numbers tell the story of a sector finding its footing after brutal downturn.

Private U.S. commercial real estate values bottomed in Q4 2024 according to NCREIF Property Index, with office the last sector to trough in Q2 2025.

Transaction activity improved throughout 2025 as bid-ask spreads narrowed, though meaningful capital re-entry hasn't yet occurred.

REITs were the real laggards of 2025 but could be poised to outperform in 2026. Cohen & Steers forecasts listed REITs returning lower to mid-double digits at the index level in 2026 after a lackluster 2% in 2025.

The listed sector has traded at sizable discounts to gross asset value for the better part of two years.

There's also a gap between public and private valuations in commercial real estate.

Perhaps the largest is in the apartment sector, which Cohen & Steers believes will drive cap rates higher and values lower for private apartment properties as the market adjusts.

Global real estate deal value reached $842 billion in 2025, up about 10% year-over-year according to McKinsey analysis, even as transaction count remained broadly flat.

The value increase primarily reflected larger average ticket sizes rather than broad-based surge in activity—capital is concentrating on more targeted opportunities.

Min 3:

Compare commercial real estate's recovery trajectory to stock market performance and the divergence becomes stark.

The S&P 500 hit new all-time highs in 2025 while CRE continued working through valuation resets from 2022-2023 downturn.

Office buildings and apartments were particularly hard hit. Many institutional investors—pension funds, insurers, and sovereign wealth funds—own real estate assets now worth less than they paid.

The high costs of repositioning older properties added to challenges.

The sector now competes with higher-yielding alternatives like private credit, data centers, and infrastructure.

Some investors find it more attractive to lend against real estate than own it outright. That capital shift contributed to REIT underperformance and widening valuation gaps.

But fundamentals are stabilizing.

The Stanger NAV REIT Total Return Index, after declining 3% in 2023, rebounded 1.1% in 2024 and is expected to finish 2025 up 5.8%, reaching an all-time high.

Performance improved meaningfully even though retail flows haven't fully recovered.

Min 4:

Individual investors face different dynamics than institutions when commercial real estate trades at 20-year discounts to stocks.

Small investors can access CRE through REITs without the capital requirements, illiquidity, or operational burdens of direct property ownership.

The valuation discount creates opportunity.

When REITs trade below their net asset values while maintaining strong operational performance and balance sheets, patient investors can acquire quality real estate exposure at discounts that institutions buying direct properties can't access.

Listed real estate provides access to higher growth property types versus private indexes.

This includes senior housing, towers, and data centers—sectors showing strong fundamentals entering 2026.

Data centers in particular are experiencing record demand tied to AI infrastructure buildout.

Cohen & Steers notes that listed REITs are set to see earnings growth reaccelerate in 2026 as the listed market priced in higher debt costs earlier and faster than private markets.

As earnings grow while valuations remain compressed, the return potential increases significantly.

Min 5:

Anyone looking to invest should understand this valuation gap won't persist indefinitely.

Historical patterns show that when REITs trade at multi-decade discounts to stocks while fundamentals improve, the valuation gap closes through REIT outperformance.

Interest rates moved favorably in 2025.

The Federal Reserve cut rates by 75 basis points over the year, the Bank of England reduced by 100 basis points, and the European Central Bank lowered approximately 50 basis points.

Markets are pricing additional reductions in 2026, which could support current valuations and encourage transaction activity.

Bank lending standards are relaxing. Just 9% of banks tightened lending standards in June 2025 compared to 30.3% in April 2024 and 67.4% in April 2023 according to Federal Reserve data.

Reduced tightening of lending standards has been a reliable precursor to capital value improvements in commercial real estate.

Retail and senior housing sectors show particularly compelling opportunities. Grocery-anchored and neighborhood shopping centers continue performing well with limited new supply.

"We're seeing the strongest valuations in a decade across active shopping centers, excluding regional malls," said Burke Davis, Head of Real Estate Banking at J.P. Morgan.

Takeaway:

Commercial real estate property stocks are trading at their biggest discount to U.S. equities in 20 years according to CRE Daily.

REITs returned just 2.5% in 2025 while the S&P 500 surged 17%—creating massive valuation disconnect as CRE values remain down double digits from 2022 peaks.

Private U.S. commercial real estate values bottomed in Q4 2024 with office the last sector to trough in Q2 2025.

Cohen & Steers forecasts listed REITs returning lower to mid-double digits in 2026 after 2% returns in 2025 as earnings growth reaccelerates.

The gap between public and private CRE valuations is largest in apartments, which will drive cap rates higher and values lower for private properties.

Listed REITs provide access to higher-growth property types including senior housing, towers, and data centers showing strong fundamentals.

Bank lending standards are relaxing dramatically—just 9% of banks tightening standards in June 2025 versus 67.4% in April 2023.

Reduced tightening has been a reliable precursor to capital value improvements in commercial real estate historically.

Position now to capture REIT outperformance as the 20-year valuation discount to stocks closes over the next 12-24 months. Focus on sectors with strongest fundamentals—retail grocery-anchored centers, senior housing, data centers, and industrial logistics.

Federal Reserve rate cuts totaling 75 basis points in 2025 with more expected in 2026 support valuations while construction costs and limited new supply protect existing asset values. Historical patterns show REIT valuation gaps of this magnitude close through outperformance, not stock market decline.