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Oil Price Increases vs. Cap Rates
There’s been a great deal of discussion about war-driven oil price increases and commercial real estate impacts.
CBRE’s recent contribution to the topic focused on the link between cap rates and crude oil prices, which the analysts said were “relatively modest,” even as Brent crude oil prices ranged from $70 to $115 per barrel since late February, at the start of the Middle East conflict.
This doesn’t mean that there is no impact on cap rates, however. According to the write-up:
- Higher energy costs could reduce tenant operating margins, “potentially reducing occupier demand.”
- The potential for increased inflation (especially growing gas and energy costs) could lead central banks to keep interest rates higher for longer
“Together, these dynamics could push cap rates upward, particularly in energy-sensitive sectors like data center and industrial & logistics facilities,” CBRE analysts said.
The impact differs between Europe and the United States because:
- Western European cap rates tend to be more sensitive than U.S. cap rates to oil price changes, due to the former’s dependence on energy imports
- Residential cap rates are less sensitive than other property sectors in Western Europe and the U.S., likely because housing is a necessity
- The U.S. is more resilient to oil price shocks, meaning that cap rate impacts peak and dissipate faster than in Western Europe
- ◦Lease
- ◦Financing
- ◦Economy
