June 14, 2019
Set against a backdrop of an interest rate environment that has changed course, cap rates have experienced no substantive moves over the last year. The latest research by Real Capital Analytics (RCA) shows that cap rates are virtually unchanged, year-over-year.
RCA’s commercial real estate economist Jim Costello notes, this lack of movement is apparent despite the fact that the 10-year U.S. Treasury is down 60 basis points from a year earlier. “There are timing differences at play here,” he writes. “The bulk of the decline in the 10-yr UST occurred over the last three months. Fears over growing barriers to trade have scaled back expectations on growth, and are leading investors to anticipate cuts in the fed funds target rate throughout the rest of 2019.”
Costello points out sharp declines in interest rates over the short-term typically don’t translate into moves by CRE investors, either. “Commercial real estate pricing can be sticky, and it would take many months of the 10-yr UST’s return to a low-2% range before investors change their pricing expectations,” he says.
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