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U.S. Cap Rates Show Slight Decline in H2 2017, CBRE Survey Finds
The recent rise in inflation and higher interest rates is expected to put upward pressure on U.S. capitalization rates in 2018, counterbalancing the impact of strong global capital flows into the commercial real estate sector, according to the latest research from global property advisor CBRE. Cap rates for U.S. commercial real estate assets fell slightly in H2 2017, albeit with some variation by sector.
Industrial and logistics cap rates tightened the most, with multifamily rates also edging down. Office and hotel cap rates had some modest changes in both directions. Retail cap rates increased, largely for power center assets.
CBRE’s Spencer Levy says, “U.S. cap rates were largely flat outside of the retail sector in H2 2017 though a shift from sale to refinance activity, contributed to lower transaction volumes. The recent spike in inflation and anticipated higher interest rates this year will add upward pressure on cap rates, offsetting the downward forces of expected strong institutional and global capital flows.”
Key findings by property type include:
– Office cap rates for stabilized CBD properties decreased modestly for most asset classes and market tiers in H2 2017, reversing the upward trend that began in H2 2015.
– Industrial and logistics cap rates fell by 13 basis points (bps) for acquisitions of stabilized assets, finishing H2 2017 at 6.52%.
– Retail cap rates increased for shopping centers and some high-street properties in H2 2017, except for high-quality assets in select gateway markets.
– Multifamily maintained the lowest overall cap rate level among all property in H2 2017. Cap rates fell slightly due to investors’ continued appetite for product.
– Hotel cap rates remained steady in H2 2017, especially in CBDs
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