Commercial real estate crisis: Distressed investors see value

“We’re currently in a trough … But I don’t think that [in the] long term, offices are going away forever.”

Collapsing office property values and the threat of an urban “doom loop” stemming from remote work have dominated headlines recently (including at Fortune). But strong fundamentals in other commercial real estate subsectors (such as industrial and retail properties) as well as signs of an office rebound in specific regional markets, are messaging “value” to private capital.

Consider Paul Kelly, DWS Group’s global head of alternatives, who sees value in commercial real estate: but not necessarily of the cubicle variety. “We feel that office [real estate] is going to remain structurally challenged, at least through 2024, and probably into 2025 as well. But there are other areas within the commercial real estate space where we’re much more constructed in the US,” Kelly told Fortune. “I would point to the industrial space, residential, and, to some degree, retail as well.” Kelly, who previously worked at Blackstone and JPMorgan, recently pointed to CRE as a potential value sector in his annual letter to DWS investors.

Record-high commercial property vacancy rates, more than half a trillion dollars of losses in property values and high interest rates have cut into owners’ margins and squeezed developers looking to refinance. That’s frozen the flow of capital coming into the sector: last November, CBRE Group estimated that there would be only $389 billion in deals for 2024, the lowest total in over a decade.

But one key…