Commercial Real Estate Cap Rates Stable for Most Asset Types During H1 2017

According to global property advisor CBRE, increased investor demand from both international and domestic buyers contributed to further capitalization rate compression in the U.S. industrial real estate sector over the first half of 2017.

Industrial remains the strongest performer out of the five sectors, given the especially robust fundamentals, record low vacancy rates, tangible rental rate growth and strong tenant demand.

The CBRE North America Cap Rate Survey provides insights on movements for the major property asset classes. Cap rates for U.S. commercial real estate assets were little changed in H1 2017, with slight increases or decreases in pricing depending on asset type. Cap rates for stabilized assets generally held firm for both the industrial and multifamily sectors, further testimony to their pricing strength.

Among the major commercial real estate sectors: 

* Industrial cap rates for acquisitions of stabilized assets continued to compress, down seven basis points (bps) to finish H1 2017 at an average 6.66%. Cap rates for Class A and B assets also dropped slightly, ending the first half of the year at 5.41% and 6.47%, respectively. Class C cap rates held firm at 8.15%.

* Among primary industrial assets in H1 2017, the markets with lowest cap rates were along the coasts, with Seattle, San Francisco, Orange County, Oakland, Northern New Jersey, Los Angeles and the Inland Empire leading the way.

*From a capital markets perspective, the U.S. industrial real estate sector is having another great year. The investment sales volume is on pace to make 2017 one of the best years ever. Investors are attracted to the asset class for its reliable and predictable returns, which continue to increase due to tangible rental rate growth and very strong fundamentals overall, said Jack Fraker, global head of Industrial & Logistics, CBRE Capital Markets.


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