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Cap Rates May Be Nearing Their Peak
CBRE said Thursday that cap rates in the commercial real estate market are nearing their peak levels, signaling stabilizing conditions on the horizon, despite challenges posed by tighter lending standards and potential market distress. The firm’s latest cap rate survey found that the average cap rate increased from 6.4% to 7% in the second half of 2023, with expansion across multiple property types.
The survey, which closely tracks pricing trends for major property types in the U.S., highlights the impact of rising bond yields in H2 2023, leading to accelerated cap rate expansion across various property sectors. However, indications from the survey and broader capital markets activity suggest that yields may soon be peaking.
“Amid tighter lending standards, the commercial real estate market has shown resilience,” said Tom Edwards, global president of valuation & advisory services for CBRE. “Cap rates may be reaching their peak, driven by lower bond yields and the expectation that the Fed has concluded its rate-hiking cycle. By adapting strategies, investors can capitalize on stabilizing market conditions and position themselves to generate favorable risk-adjusted returns.”
- ◦Sale/Acquisition
