Interest Rate Hikes May Have More Impact on Deal Volume Than Cap Rates in 2017

March 6, 2017

Interest Rate Hikes May Have More Impact on Deal Volume Than Cap Rates in 2017

March 1, 2017 | by  | National Real Estate Investor

Interest rate increases in 2017 are expected to have less of an effect on cap rates than originally predicted, with experts forecasting that the current flat cap rate environment will continue. In this environment, sources say investors should instead watch out for the effects that interest rate increases will have on deal volume.

Last year, investment activity levels of foreign buyers stemmed the effects that interest rate increases had on the market, so that cap rates either remained stable or increased slightly in the second half of 2016, according to CBRE’s second half 2016 Cap Rate Survey. Research done by real estate data firm Real Capital Analytics (RCA) also determined that across all asset types, cap rates remained generally flat in 2016 despite uncertainty in the market.

Weaker capital investment is expected from China this year, according to Spencer Levy, Americas head of research with CBRE, but that should be made up for by German and Japanese investors who have low or negative interest rates in their home countries and are seeking higher yields. “In addition, Norway, which has a major sovereign fund, is expected to increase their allocation to commercial real estate as well. We also have a record amount of dry power in domestic institutions [that] were under-allocated to real estate in 2016 and increased allocations in 2017,” he says.

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Austin Gross
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