Connections & Disconnections of Commercial Property Cap Rates

by CBRE | Jan 16, 2024

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Key Takeaways

  • Commercial property capitalization rates (cap rates) arguably are the most closely watched valuation and overall return metrics particularly for major property types.
  • Since 2001 cap rates for all property types have remained within a range of under 500 basis points (bps), experienced very low volatility, and are highly correlated. The magnitudes of some outcomes are likely affected by smoothing in the data but not in a meaningful way.
  • Cap rate movements reflect both changes in macroeconomic factors and significant changes in property type fundamentals, such as the impact of short-term rentals on hotel assets, e-commerce sales on retail stores, remote or hybrid working on office buildings, and supply chain challenges on warehouse & distribution facilities. Investors should adjust property portfolio weightings when such changes first appear.
  • The national data findings, while informative, require verification to be useful for investment decisions in local markets. Local cap rates respond differentially to changes in macroeconomic condition.