After years of uncertainty, global commercial real estate is showing clear signs of stabilization. Office valuations have undergone a sharp reset of 40-50% across major developed markets, creating what experts now see as a healthier foundation for recovery. As return-to-office trends normalize worldwide, demand is strengthening—but not for just any space. Today's tenants want amenitized, sustainable, and future-proofed buildings that meet the demands of modern work.

 

 

The Great Reset: What Happened to Office Values?

 

The commercial real estate sector, particularly offices, experienced what can only be described as a traumatic adjustment period. The COVID-19 pandemic fundamentally changed how people work, with remote and hybrid models becoming standard across many industries. This shift, combined with rising interest rates, forced a dramatic repricing of office assets.

 

According to Kieran Farrelly, Chief Investment Officer of Real Estate at Schroders Capital, the adjustment has been significant. Speaking in a recent interview, Farrelly noted that office values dropped 40-50% or more across major markets. This sharp drop represents a massive loss of equity for existing owners and investors, and it pressured lenders by raising Loan-to-Value (LTV) ratios. While painful, this repricing has created a more realistic pricing environment.

 

 

Return to Office: The New Normal

 

Here's the good news: people are coming back to offices. Return-to-office trends are normalizing across major developed markets, with particularly strong momentum in Asia-Pacific's dense urban environments. Cities like Singapore, Hong Kong, and Tokyo are seeing workers return to physical offices more quickly, driven by urban density and corporate culture.

 

But there's an important distinction emerging in the market. Not all office space is created equal, and tenants are making it clear what they value.

 

 

The Office Space Divide

 

A significant split is developing in the office market. Commodity office space—basic buildings with few amenities and older infrastructure—continues to struggle. In markets like the United States, this oversupply is working its way through the system, with many older buildings facing difficult choices about renovation or repurposing.

On the flip side, there's actually a shortage of highly amenitized, sustainable, and future-proofed office space. Modern tenants aren't just looking for square footage; they want:

 

• Advanced sustainability features including energy efficiency and green certifications

 

• Premium amenities like fitness centers, quality food options, and collaboration spaces

 

• Technology infrastructure that supports hybrid work and modern connectivity needs

 

• Health and wellness features including improved air quality and natural light

 

• Flexible layouts that can adapt to changing work styles

 

This divergence means investors and developers who focus on quality assets are finding strong demand, even as overall office markets adjust. The market is no longer a monolith, but a two-tiered system.

 

 

What This Means for Investors

 

The 40-50% valuation reset, while dramatic, has created interesting opportunities. Property that once seemed overpriced has been repriced to reflect new realities. For investors with the capital to acquire or develop high-quality office space, the current market offers entry points that weren't available during the pre-pandemic boom.

Schroders Capital and other major institutional investors are viewing this as an early stage of recovery. The worst of the repricing appears to be behind us, and as return-to-office trends continue normalizing, quality assets are positioned to benefit.

 

 

Other Commercial Sectors

 

While offices grab headlines, other commercial real estate sectors are showing strength:

 

• Logistics and warehousing remain supported by growing e-commerce adoption and demand for modern, sustainable facilities

 

• Hospitality is seeing renewed investment as global travel rebounds to pre-pandemic levels

 

• Retail is evolving, with successful properties offering experiences that complement rather than compete with e-commerce

 

 

Looking Ahead

 

The commercial real estate market's stabilization represents an important inflection point. After years of uncertainty, pandemic disruptions, and interest rate volatility, markets are finding a new equilibrium. This doesn't mean a return to pre-2020 conditions—the office market, in particular, has fundamentally changed. The persistent challenge remains high financing costs and inflation, which continue to constrain new development and complicate refinancing for older assets.

 

Instead, we're seeing the emergence of a more mature, quality-focused commercial real estate sector. Buildings that offer genuine value to tenants through sustainability, amenities, and flexibility are commanding strong interest. Meanwhile, older commodity space faces an uncertain future.

 

For investors, developers, and occupiers, the message is becoming clearer: the flight to quality isn't just a temporary trend—it's the new normal in commercial real estate.

 

 

Conclusion:

 

The 40-50% reset in office valuations marks a painful but necessary adjustment for global commercial real estate. As markets stabilize and return-to-office trends normalize, a new opportunity is emerging: the chance to invest in and develop the sustainable, amenitized, future-proofed spaces that today's workforce demands. The commercial real estate recovery won't look like a return to 2019—it will look better, with smarter buildings, more thoughtful design, and a renewed focus on what actually creates value for tenants.

 

For those paying attention, this transition from crisis to stability represents one of the most interesting moments in commercial real estate in decades.

 

 

Source: BNN Bloomberg (Interview with Kieran Farrelly, CIO of Real Estate at Schroders Capital).