Why Operational Experience Will Be the Deciding Factor in the Next CRE Cycle
Commercial real estate is cyclical; expansion, peak, contraction, recovery. But as we head into the next cycle, the rules are changing.
The U.S. is facing $1 trillion in commercial mortgages maturing by the end of 2026 (MSCI), much of it locked in at low interest rates that will now need refinancing at today’s higher costs. Office vacancy rates remain at record highs - 19.8% nationally in Q2 2025 (Cushman & Wakefield), while industrial and multifamily rent growth has slowed from pandemic peaks.
Financing is harder to secure. Lenders are pulling back, debt service coverage ratios are under strain, and cap rates have been creeping up. Add rising operating expenses, from insurance to labor, and the next cycle will demand a level of operational discipline many owners simply don’t have.
Why “Buy and Hold” Isn’t Enough Anymore
In past cycles, strong market appreciation could mask operational inefficiencies. Investors could “buy right” and rely on cap rate compression or rising rents to deliver returns.
That won’t work now. In a lower-growth environment, even well-located assets can underperform without operational expertise.
Consider:
Energy costs for commercial buildings rose over 15% between 2021-2024 (EIA), eating into NOI for operators without sustainability and efficiency strategies.
Insurance premiums for CRE assets are up 25–35% year-over-year in high-risk markets (Moody’s Analytics), with operators needing proactive risk management to control costs.
Tenant demands are shifting; 74% of tenants say amenities and experience are deciding factors in lease renewals (Building Engines), meaning operators must now compete not just on space but on service.
In this climate, operational missteps compound quickly. Poor tenant engagement, slow leasing, inefficient expense management, and deferred maintenance can push an asset from profitable to distressed—fast.
Operational Experience as the Competitive Edge
The winners in the next CRE cycle will be those with real operational chops; the ability to run assets like high-performance businesses, not just financial instruments.
1. Precision in Expense Management
Granular Expense Auditing: Identifying and renegotiating vendor contracts, optimizing utilities, and centralizing purchasing across portfolios can cut operating costs by 5-15% without impacting service quality.
CapEx Planning: Operators with clear Property Improvement Plans (PIPs) can time upgrades strategically, avoiding reactive spending at peak pricing.
2. Tenant-Centric Asset Management
Data-driven engagement programs can increase renewal rates by up to 10%.
Integrating tech platforms for maintenance requests, amenity booking, and communication boosts satisfaction and reduces vacancy downtime.
3. PropTech Integration
Smart building systems can lower energy costs by up to 30% (ENERGY STAR).
AI-driven leasing tools reduce time-to-lease by identifying the highest-likelihood prospects and streamlining negotiations.
4. Adaptive Market Strategy
Skilled operators can pivot between asset classes or adjust unit mix and pricing strategies in response to local market shifts.
Example: In secondary markets where office demand lags, experienced operators are repurposing space into flex, medical office, or mixed-use, unlocking new revenue streams.
A Cycle-by-Cycle Impact
Operational experience matters in all four stages of the CRE cycle:
Case in Point
During the 2008 downturn, multifamily assets with strong on-site management outperformed poorly managed peers by 300-400 basis points in NOI growth over five years (NMHC). Those operators not only retained tenants during recessionary pressures but also captured outsized gains during the recovery.
Today’s cycle will be no different, except that market recovery is likely to be more uneven, making operational strength even more decisive.
Takeaways for Investors
Assess Your Operator’s Track Record: Ask for historical NOI performance across different cycles.
Prioritize Operational Transparency: Frequent, clear reporting signals disciplined management.
Look for Operational Innovation: Tech-enabled processes, tenant experience initiatives, and sustainability programs are not “nice-to-haves” - they’re competitive necessities.
Value Local Expertise: Submarket knowledge and relationships can drive leasing velocity and reduce downtime.
Sources:
MSCI Real Assets, “2025 CRE Debt Maturity Outlook”
Cushman & Wakefield, “Q2 2025 Office Marketbeat”
U.S. Energy Information Administration, “Commercial Sector Energy Price Trends”
Moody’s Analytics CRE, “Insurance Cost Trends in Commercial Real Estate”
Building Engines, “Tenant Experience Study 2024”
ENERGY STAR, “Energy Efficiency in Commercial Buildings”
National Multifamily Housing Council, “Multifamily Performance in Downturns”