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Cap rates are on the rise – When will they stabilize?

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After over a decade of continuous year-over-year property value growth, prices have been falling over the course of 2023 nationwide. According to Real Capital Analytics (RCA), the average value of commercial properties fell 9.58% between July 2022 and August. The industrial sector had the least negative growth at -1.7% year-over-year, with apartments giving back some of the Covid era gains at -12.2% year-over-year price growth.

Source: RCA CPPI (Commercial Property Price Indexes).

As asset prices have dropped off, cap rates have also risen in recent quarters after bottoming out at the end of 2021, according to CBRE’s commercial sale comps collected in the first half of 2023. However, spreads to 10-year treasuries remain compressed as compared to historical averages.

Source: CBRE Econometric Advisors.

CBRE’s survey respondents do expect that cap rates are starting to peak, particularly in the multifamily, retail, and hospitability sectors. In the industrial sector, while fundamentals for the asset class remain in place, reigning in of rent growth assumptions given the expectation of new supply coming online have investors still expecting more cap rate expansion over the next 6 months. Investors still expect there to be additional cap rate widening in the office sector.

Source: CBRE Econometric Advisors.

As a result of the rising cost of capital, softening price and rent growth projections, and cap rate increases, transaction volume has been slow on large transactions (over $25 million) in 2023. According to Green Street, in the first six months of 2023, large property sales were down 61% from 2022 levels.

Source: Green Street; August 15, 2023.

Volume has lagged as many owners have not been forced to sell in the illiquid large commercial property space. However, as more debt maturities approach, CMBS debt in delinquency and special servicing has been ticking upward in recent months – which may lead to more forced sellers in the market.

Source: Trepp.


The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance.  The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.


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