Cap Rate Inquiry

NAI Affinity
September 22, 2022

Client Question:

I see a steady stream of real estate offerings across my computer desktop each day. It does not appear that the ask or listing prices based upon cap rates have changed at all for income producing properties. Are you seeing where the actual sold prices are softening, meaning cap rates are expanding at all?

NAI Affinity's Answer:

"Due to rising interest rates, there is a growing expectation gap when it comes to sellers and buyers of investment properties. This became most noticeable during the second half of 2022. While the first half of the year saw a near record volume of transactions at historically high prices, this gap in expectations has resulted in fewer transactions during the second half of the year. Preferred asset classes such as institutional quality apartments, class A industrial, and single-tenant NNN investments are holding on to near record pricing, with no more than around 20 to 25 bps of movement in cap rates (at least thus far). Factors contributing to pricing stability, in the face of rising interest rates include inflation, increases in replacement cost, capital flows into real estate (from the stock market), capital flows into CO (as a desirable market), and competition amongst buyers (especially institutional and 1031 exchange buyers).  Cap rates for less desirable types of investments (e.g. B & C properties, multi-tenant, etc.) have moved more like 50 to 75 bps off of historical lows."

- Ryan Schaefer, CEO, NAI Affinity

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