July 23, 2019
Cap rates for Q2 2019 were flat-to-declining nationally during a period of wild swings in the level of the 10-year U.S. Treasury, according to preliminary numbers from Real Capital Analytics (RCA). The key for commercial real estate investors though is not always what the overall numbers say, but to drill down to examine a local market where their portfolio is located.
RCA’s CRE economist Jim Costello writes, “Changes in the composition of what sells each period can introduce noise in national cap rate trends. If more deals are seen in markets that are typically inexpensive, or more deals are seen for assets that are older, cap rates might seem to be creeping upward.”
RCA is introducing a new tool in its US Capital Trends report that adds controls for quality issues in cap rate observations, and points to a generally flat trend in cap rates over the last year.
Costello notes, the issue of asset quality is “vitally important for the performance of retail property as there are clear winners and losers in this sector at the asset level. Looking at retail trends across markets using this quality-adjusted cap rate figure, few markets exhibited significant moves over the last year.”
The report also will point to a generally declining trend in sales volume for H1 2019, writes Costello. This dip will be seen for all sectors except office, apartment, and seniors housing and care.
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