Commercial real estate investors who were hoping that falling property values were approaching bottom are likely to be disappointed in the wake of the current banking crisis.

Commercial property prices were already down 15% in February from their peak in March 2022, according to a Green Street report last week. The banking crisis is expected to put extra downward pressure on CRE valuations, even if there isn't a cascade of other bank failures, with the inevitable tightening of credit.

“Real estate capital values, which had already been falling, will be further pressured by an even more tightly constrained credit market," CBRE Global Chief Economist Richard Barkham said in a statement this week.

REIT stock prices have also taken a beating in recent days. The FTSE NAREIT Equity Index, which tracks all U.S. equity REITs, dropped about 4.6% over the last five days, more than the S&P 500's 3% slide over the same period. On Thursday afternoon, the index was down nearly a point while the S&P 500 was up roughly 1.5%.

Office properties stand to be hit particularly hard, with the sector unlikely to ever recover its pre-pandemic occupancies. The FTSE NAREIT Equity Office index was down over 3.5% as of early Thursday afternoon trading after losing more than 12.5% in value over the five days ending Wednesday.

Green Street reported that in February alone, office valuations dropped 9.5%. Over the last 12 months, office prices have dropped 25%, the most of any property type, though apartments were down 21% and malls 19%.

“Property prices are fighting against higher interest rates at both ends of the yield curve, and that’s a battle they’re not going to win,” Green Street co-Head of Strategic Research Peter Rothemund said in a statement.

Even after the failures of Silicon Valley Bank and Signature Bank, economists and finance experts told Bisnow this week they expect the Federal Reserve to continue its interest rate hiking campaign.

“The Fed's sheet of music is to raise rates, and I think they'll continue to do that,” said UC Funds CEO Dan Palmier, whose company is a nonbank lender in the real estate space.