The upshot is that some well-positioned retail properties could see cap rates contract.
Supply-constrained port markets, such as Los Angeles, Oakland and Northern New Jersey, have some of the lowest cap rates in the U.S. This is exemplified by very low cap rate levels in Riverside, Phoenix and Dallas. There is little concern about the burgeoning development pipeline, with 94% of respondents believing heavy development will not hamper NOI growth and investment capital. Industrial: While the significant growth of e-commerce has elevated property values in the logistics hubs best positioned to benefit, assets are still viewed by investors as efficiently priced.Survey respondents believe that suburban submarkets could benefit from any near-term aversion to CBD office spaces. For 'Gateway' CBD markets, respondents more often believed cap rates will increase during the next six months, which is likely due to continued office occupancy pressures in large CBDs that depend on public transit. Office: Survey respondents are split on whether cap rates across all markets will increase or decrease in 2022.The survey was conducted before the Russia-Ukraine situation intensified dramatically in late February. A lower cap rate generally indicates a higher value. Capitalization rates-usually called cap rates-measure a property's value by dividing its annual income by its sale price. economic outlook," said Richard Barkham, Global Chief Economist and Americas Head of Research for CBRE.ĬBRE's survey, which examined investment sentiment on market conditions and capitalization rates for stabilized properties, revealed several key findings. While the crisis in Ukraine and associated sanctions bring some near-term uncertainty into play, we do not currently believe that will be too disruptive to the U.S. "Strong property market fundamentals, fueled by a robust economic recovery, will help maintain cap rates at current levels. CBRE expects the yield on the 10-year Treasury to increase to 2.3% in 2022-a level that is likely to maintain a healthy spread relative to real estate cap rates. Aggressive monetary stimulus weighed on interest rates in 2020 and contributed to a decline in cap rates through 2021.
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Spreads between cap rates and bond yields have historically been a strong driver of both investment flows into property markets and cap rate compression. Conversely, lingering uncertainty in the office sector suggests there is upward pressure for yields in this asset type."įalling bond yields in 2021 benefited real estate valuations, especially among sectors such as industrial and multifamily with robust net operating income (NOI) expectations. "Low cap rates for industrial and multifamily properties reflect solid fundamentals and rent growth prospects that characterize these sectors. heals from the pandemic, investors' demand for real estate has grown to new heights," said Tom Edwards, Global President of Valuation & Advisory Services for CBRE. CBRE is forecasting investment volumes to increase over 2021 by 10% in 2022. Investors are expected to continue targeting real estate for attractive returns relative to other asset classes, and increasingly, as an inflation hedge. While this was likely attributable to more people migrating to the suburbs during 2020, many renters have now returned to urban neighborhoods, and occupancies there have largely returned to pre-pandemic levels.
The multifamily sector also saw notable cap rate compression, particularly in the suburban segments. The CBRE survey found that the industrial sector, driven by super-charged e-commerce and rent growth amid the pandemic, saw the most cap rate compression in 2021, regardless of asset class or risk profile. commercial real estate investment has bounced back from COVID-19 pandemic, with investor demand reaching new heights and capitalization rates declining across the real estate spectrum.
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Email Sign Up For Our Free Weekly NewsletterĪccording to a new CBRE market survey, U.S.
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