Property prices have enjoyed robust growth in recent years. But recent industry data is suggesting that bull run may be nearing its end.

According to Green Street Advisor’s Commercial Property Price Forecast, property prices are in the “ninth inning” and likely to move slightly lower over the next year with a drop of less than 5 percent. That forecast is based largely on current valuations relative to other investments.

For example, cap rates are 10 to 20 basis points below yields on long-term investment-grade bonds compared to a “normal” relationship, where cap rates are 50 to 100 basis points higher than bond yields, notes Peter Rothemund, a senior analyst at Green Street, a Newport Beach, Calif-based research firm. “On that metric, real estate looks expensive,” he says. “Why do I want a 5 cap rate when I can buy this less risky bond at a higher yield?”

Both the Green Street forecast and Moody’s/RCA Commercial Property Price Indices (CPPIs) are showing a deceleration in price growth. Moody’s/RCA national all-property composite index declined 0.3 percent in January 2016. The decline is the first since the CPPI troughed in early 2010, and follows a flat performance this past December. The Green Street CPPI for February reported healthy year-over-year gains, with commercial property values rising 8.0 percent over the past 12 months. However, Green Street also reported no gains in January and a 1.0 percent month-over-month gain for February.

To some extent, that deceleration may be a reflection of how far property values have already rebounded. According to the Green Street CPPI, property values for the commercial and multifamily industry as an aggregate are now 23 percent higher than they were at the peak of the previous cycle in August 2007. Values on regional malls and apartment properties have climbed the highest, with gains of 42.0 percent and 36.0 percent respectively, while on the low end office values are only 7.0 percent higher than they were at the 2007 peak and lodging values are actually down -11.0 percent.

Pricing is getting high by historical standards. So there was some moderation that occurred at the end of 2015, and that will likely continue in 2016, sayd Andrew Nelson, U.S. chief economist for real estate services firm Colliers International. Property values can vary widely by property type and by location. Yet there are a few trends that apply universally.

“On the plus side for property pricing, we are at an inflection point where we are not going to see prices fall anytime soon,” says Nelson. Property fundamentals are still very strong. And, despite volatility in the financial markets, the underlying strength of the economy is still more or less holding firm. So there are still good demand drivers on the tenant side, which will likely mean that occupancies and rents will continue growing in 2016, Nelson notes. Investor demand—from both domestic and foreign buyers—also remains strong. Combined, those factors should help property values remain stable in the near term, or even move higher in some cases, according to Nelson.

It also is important to note that pricing data is very different in the top six gateway markets versus the rest of the country. Pricing in the top markets is up about 20.0 percent over the prior peak, whereas it is only approaching prior peak levels in the rest of the country, says Nelson. Prior peak does not act as a cap, but moving substantially above a prior peak certainly creates the expectation that future price gains will tend to moderate, he notes.

Outperformers

There are two standout sectors that have been accounting for most of the value appreciation in the top metros—apartment buildings and office assets in Central Business Districts (CBDs), both of which are up about 40.0 percent over the prior peak, according to Nelson. In the non-gateway markets, apartment and CBD office buildings are close to pricing levels that were seen at the prior peak in 2007.

It is a much different story when it comes to retail, industrial and suburban office assets. Even in the best markets those sectors are only just getting close to prior peak values. Retail and some of the campus-style suburban office properties will likely see some greater challenges ahead for pricing increases due to factors impacting demand in those sectors, but industrial is a sector that likely has potential to achieve higher values, Nelson adds.

“Pricing depends on the market and the product profile,” agrees Kevin Shannon, president of West Coast capital markets for real estate services firm NGKF. For example, class-A office properties in core coastal markets continue to see sale prices that remain strong and are even exceeding expectations.

“In the West Coast markets, the fundamentals continue to get better and the rents continue to grow, and stronger rents on core deals have led to stronger prices,” says Shannon. In secondary markets that might be more dependent on CMBS financing, prices have decreased a bit due to widening spreads in the CMBS market, he adds.

Going forward, the big question is how the forecast for flat or even declining property values in some markets may influence buyer and seller decisions. Although investors are by no means heading to the sidelines, there could be a bit of a pause as buyers and sellers readjust expectations related to bid and ask prices.

“There is probably a wider than normal bid-ask spread. Buyers want a little bit higher cap rate and sellers are probably not willing to make that move yet,” says Rothemund. “So we will have to see where it settles. But I don’t think you will have a robust transaction market until people figure out where we are.”