Commercial real estate valuations are under the microscope as the market works through one of the most uneven resets in decades. Transactions are happening, but the signals are far from consistent. The slow pace of deal flow of the past few years left appraisers with few comps to rely on. This year, as our Transaction Tracker shows, the steadier flow of deals is giving appraisers more data points to work with and reducing some of the guesswork. For lenders and investors trying to originate loans and close deals with a bid-ask gap that has narrowed in recent years, thanks in part to the work of appraisers who size up risk, it’s appraisers who are tasked with making sense of this patchwork and anchoring confidence in deal activity.
Craig Benton, Director of Valuation Services at Synovus Bank, joined the CRE Weekly Digest podcast to unpack the state of commercial real estate from the appraisal and lending point of view. He noted, “Values are steadily rising in some markets, they’re stable in a lot of markets as well, and we have some markets that are declining.” His view reflects the challenge of today’s environment, where prices are moving in different directions (some rising, some falling) and appraisals require a more nuanced approach because broad generalizations no longer hold. Now that more comps and data points are flowing, interpreting them has never been more critical.
The LightBox Appraisal Index reflects both the resilience and the tension in this moment. At midyear, the Index rose to 63.9 in Q2, its highest reading in nearly three years and its second straight quarterly gain. High appraisal volume in Q2 was supported by refinancing activity and modest new loan originations. However, appraisal activity, often the first window into lender sentiment, suggests increasing hesitation. The sharp contrast between April’s strength and the cooling seen in May and June underscores how quickly caution can take hold, especially with high interest rates continuing to weigh on borrowing and deal volume.
Appraisal Survey Signals Lack of Clarity
Even as appraisal activity gradually increases, prices in some sectors are still in flux. Elevated borrowing costs and cautious underwriting continue to stall true price discovery and extending marketing periods.
LightBox’s Mid-Year CRE Market Sentiment Survey captured how divided the appraisal community is: 53% of respondents agreed that commercial property pricing has hit bottom in most sectors and the bid-ask gap between buyers and sellers has narrowed, while 47% disagreed. Comments from appraiser respondents highlight just how uneven the reset feels across markets:
- “Pricing is relatively stable.”
- “Depends on the market but I see prices continue to be pressured.”
- “Cap rates still haven’t normalized to current interest rates.”
- “It is so hard to act with certainty under conditions of such uncertainty.”
Benton described the same divide. More comps are finally coming through, even in office, as sellers capitulate and buyers return. “We’re seeing lots of sale comps even in the office market because investors are finally buying office again,” he said. But those comps don’t always point to stability. “When I do some macro-level analysis, I’m seeing some declining sale prices. That’s going to lead to value pressure in some of those markets as well.”
The Pressures Shaping Valuations
If there is one factor appraisers consistently point to as a defining factor of 2025, it is interest rates. According to the Survey, 59% of appraisers said Fed policy and borrowing costs had the greatest impact on CRE dealmaking in the first half of 2025. Elevated rates complicate investment and lending decisions, lengthen underwriting timelines, and constrain supportable values under today’s debt terms.
Benton described how those pressures show up in practice. For construction appraisals, his team reviews current developer budgets with an eye toward changing costs for both labor and materials. “That is certainly a key factor that we look at,” he said, noting that tariff-related construction cost spikes have been less widespread than the inflation surge of 2022 and 2023, but still influence a project’s feasibility.
Insurance remains a material variable in underwriting. Survey respondents flagged “insurance inflation” as a major factor weighing on valuations, and Benton noted that it’s still embedded in pro formas even as YoY premium growth has moderated. His team monitors how borrowers are “re-trading their policies almost annually” to hold insurance rates in check, which helps explain why reported increases are stabilizing.
In tandem with higher borrowing costs and tighter lender constraints (DSCR floors, debt-yield hurdles), rising operating inputs and selective underwriting are shaping value conclusions. The result is not uniform: cap-rate selection, expense trending, and sensitivity cases carry more weight, and supportable values are increasingly determined by today’s debt terms and market-level insurance loads rather than historical performance.
What Appraisers Are Watching in the Final Months of the Year
What happens next will depend heavily on interest rates and access to capital. Nearly half of appraisers in the Survey (47%) said the most important factor for CRE dealmaking in the second half of 2025 will be whether rates come down. Another 21% cited access to debt capital as the key driver. A Fed interest rate cut this week would likely pull forward refinance mandates, reactivate shelved acquisitions, and expand appraisal pipelines as lenders reprice debt, sponsors retest proceeds, and comp visibility improves further.
From Benton’s vantage point, activity is already picking up. “We’re seeing a lot of refinance transactions,” he said. “Some of our appraisers are very busy… quoting three-week turn times with higher fees because of an uptick in refi activity.” Synovus reported net growth in its CRE portfolio last quarter for the first time in over a year, and Benton expects more growth in the second half.
That optimism comes with caveats. Valuations are still constrained by higher Treasury yields, insurance costs, and growing inventory in certain asset classes. In multifamily, for example, Benton noted some erosion in values on re-appraisals, but conservative loan to value ratios have kept stress within acceptable ranges. And while investors are showing conviction in sectors like data centers and grocery-anchored retail, office remains clouded by structural shifts.
For appraisers, the outlook is less about calling a bottom than continuing to provide the clarity lenders and investors need to make decisions in a market defined by uneven signals.
