Income Is the New Appreciation: What Investors Should Take from 2025 CRE Capital Flows | The Lease I Can Do

For years, commercial real estate investors could underwrite deals with the expectation that values would rise simply by holding the asset. Buy at today’s price, let cap rate compression or market momentum do the work, and you were rewarded with appreciation on the back end. In 2025, that story looks very different.

We’re in a market where higher-for-longer rates and cautious capital flows have shifted the return profile. The latest CBRE Midyear Outlook highlighted that office investment volume is expected to grow 19% this year, the highest across all asset classes, but the driver isn’t appreciation. It’s stable income. Across sectors, investors are less focused on riding the wave of value growth and more focused on locking in predictable NOI streams that can withstand volatility.

What This Means for the Market

The backdrop is clear: elevated debt costs make leverage less favorable, while higher cap rates leave little room for automatic valuation gains. Rent growth is uneven. Multifamily and retail are still seeing positive momentum, while office continues to split between high-demand Class A properties and everything else.

In this environment, assumptions have to change. The aggressive rent bumps and low exit cap rates that padded pro formas in past cycles don’t work the same way anymore. Investors are pushing for realism: stronger stress testing, tighter sensitivity analysis, and exit strategies that don’t depend on the market bailing you out.

What This Means for Analysts

For analysts and associates, the shift is obvious. Income stability and operational efficiency matter more than speculative upside. That means digging deeper into tenant credit quality, renewal probabilities, and expense management rather than counting on terminal value to carry returns.

Scenario modeling is no longer optional. What happens if renewal rents come in flat? How does DSCR hold up if debt costs increase? The ability to answer those questions quickly, and back them with data, now separates a solid deal from one that falls apart under scrutiny.

The Consulting Angle

Advisory teams are also adjusting. Consulting today is not just about running the math on a lease versus buy. It’s about helping clients understand how resilient cash flows tie directly into business strategy. In a cycle where returns come from income, positioning, tenant experience, and execution make the difference.

Final Take

This isn’t a low-return market. It’s a market that rewards discipline. Investors who adapt their underwriting, focus on durable income, and align operations with tenant needs will continue to find attractive opportunities. Automatic appreciation may be gone for now, but smarter returns — built on strong fundamentals — are very much in play.