Properties seem to have recovered better than expected after the COVID-19 office exodus.

Whatever happened to that commercial real estate crash that was going to sink the American economy? Did all those empty office buildings fill up while nobody was looking?

And, perhaps more importantly for financial advisors, is it safe to invest in commercial real estate (CRE) again?

For those that may have already forgotten, a huge percentage of commercial buildings and offices were ordered closed in early 2020 due to the deadly COVID outbreak. Employees were told to work from home to protect the public’s safety. Or at least the non-essential ones were.

As a result of all this uncertainty, the iShares U.S. Real Estate ETF (IYR), which holds REIT shares, sank over 40 percent in the first quarter of 2020. Commercial office rents also plummeted in the wake of the pandemic, along with the price of real estate debt, as the country waited for the miracle cure that would send everybody back to the office.

By the time the Food and Drug Administration (FDA) gave the COVID vaccine full approval, however, it became obvious that not all those employees that left their offices would need to return. New technologies, like Zoom, made remote working palatable for management, who often preferred to skip the commute and work from home themselves.

The upshot was that all those downtown office buildings remained dormant far longer than expected, while the expectation on Wall Street that the demise of the commercial real estate market would spark a recession concurrently grew.

Until, of course, neither happened. Not the commercial real estate crash, nor the recession.

Furthermore, the IYR is up 14 percent in the past year and 8.5 percent over the last 5 years, recovering those early losses and adding a little more for good measure.

And while a lot of those very same buildings remain far less than fully occupied, a number of financial advisors believe the CRE market is looking more attractive than ever.

“We believe that the real estate crash didn't happen because lenders and borrowers are much savvier today versus the last two cycles about how to navigate the macro environment, liquidity and debt maturities. Plus, rent growth is still positive,” said Walker Williams, chief market strategist for private wealth at Lido Advisors. 

The CRE environment is going to get more favorable in 2025, especially under the Trump administration, he said. Student housing, industrial, and multi-family are his top three real estate sectors, in that order.

“Real Estate debt across the board for current and consistent yield is attractive in a securitized fashion,” he said.

Michael Rosen, chief investment officer at Angeles Investments, also said he does not see a crash happening in CRE, as one would occur when there are extreme valuations and leverage, which is not the case currently.

The central business district office space remains problematic, as there has been a structural shift in demand coinciding with a jump in interest rates, he said. In these cases “lenders will lose money and equity will be destroyed,” he said, still foreseeing the revaluation process being orderly.

“It’s important to remember that central business district office represents just one segment of the CRE market. Other areas are seeing strong demand, such as data centers, cell towers, industrial, and multifamily. So there are areas that are more attractive, and opportunities are out there,” he said, adding that he partners with established real estate teams to buy properties across the country and property-type.

Meanwhile, Matt Malone, head of investment management at Opto Investments, said advisors should be selective. He sees the best risk-adjusted returns continuing to be on the debt side, but expects transaction volume to pick up and pricing on acquisitions to improve. 

“Floating rate loans that were originated at the end of the low interest rate environment should require refinancing and likely will cause repricing for equity owners as new buyers look for positive leverage on acquisitions,” said Malone, who also cautions investors to “beware of legacy portfolios.”

Elsewhere, David Gottlieb, wealth manager at Savvy Advisors, warns that those investors or advisors expecting a crash will be met with “anticlimactic conclusions” and ultimately may regret sitting on the sidelines if that's how they decide to spend 2025. 

That is not to say his outlook is rosy, however. Certain areas of the country are seeing multifamily rents declining and in a large sample of markets he sees pricing pressures due to still-elevated interest rates and carrying costs, Gottlieb said. 

However, interest rates are starting to come down, and demographic trends in some areas are showing strong population growth and reasonable supply and demand stability, he said. Bargain hunters are starting to emerge in areas that have been hardest hit, he said.

“With a lot of the damage already done, with a lot of cash on the sidelines ready to get to work, with interest rates heading down that could help affordability, and with positive trends still occurring in various pockets throughout the country, there are plenty of reasons to think more optimistically about the real estate market. Unlike recent memory, we may just need to be more selective in our investment targets,” said Gottlieb, who typically invests in targeted funds or single asset vehicles.

‍