Office owners refuse to accept that their buildings are worth less. It means a commercial-real-estate recovery may be slower.

• Commercial property investment volume plummeted in the first quarter.
• Owners haven't come around to accepting the drops in property prices, Bank of America analysts wrote.

The best way to determine how much an office or apartment building is worth: its selling price. The problem is, there aren't that many sales.

Investment volume in commercial real estate fell off a cliff last quarter. According to CBRE, transactions plunged 57% in the quarter versus a year earlier to $78 billion — the lowest in at least a decade if pandemic quarters are excluded — with dealmaking led by apartment and industrial buildings that remain in investors' good graces for their more stable incomes.

It's no surprise why buyers should be reticent. Soaring interest rates are jacking up financing costs, and tighter underwriting standards are forcing them to bring more equity to the closing table. On the fundamentals, multifamily landlords can't push big rent increases as they did during the pandemic. Office owners are grappling with tenants not renewing their leases, or negotiating less space.

But with few transactions on which to peg market values, is the market truly down? To many owners, the answer seems to be no, according to analysts at BofA Global Research, who warned their readers that property values would be under pressure until they "more fully" account for market conditions.

"To date, however, it seems that many investors are loathe to accept current pricing levels and as a result, transaction volume decreased sharply over the past month," the analysts wrote in a report on Friday.

The refusal to accept the declines is only slowing the eventual recovery, according to some industry players.

Last week, Alfred Brooks, the head of JPMorgan's commercial real estate group, said he's seen distressed buyers already raising money to pick up the pieces, once prices get low enough.

Richard Rubin, a developer who wants to breathe new life into office properties, is searching for bargains but told Insider's Alex Nicoll that current owners are far from being realistic about their pricing.

"If you're a large institutional landlord, there's a mountain of pressure to continue the myth at the moment, that commercial offices are going to bounce back," Rubin told Insider earlier this year. "You have a number of folks that don't want to fess up to the fact that the commercial office — as we effectively knew it before — is dead."

Indeed, commercial real estate values are down, by other measures.

According to the RCA Commercial Property Price Index, property values overall fell 8% in the first quarter, year-over-year, led by apartment buildings with a drop of 10.3%. The declines became more widespread in April, meanwhile, with even industrial properties that have been darlings of big investors like Blackstone falling, MSCI reported on May 26.

April was the first month since 2010 that prices of all types of commercial property fell on an annual basis, according to MSCI.

To be sure, some owners are accepting of today's lower values. But sales are led by those on multifamily properties, which are still favored by investors and owners can book profits because their values have soared more than other kind of commercial property over the last decade, according to BofA Global, citing the RCA index.