Current Market Trends and Future Cap Rate Projections
By Crew Enterprises
Table of Contents
Introduction
With rising interest rates in recent years, cap rates have begun to shift. What does the future hold for commercial real estate?
Recent Trends in Cap Rates
- In 2023, real estate values declined 16.1% from peak levels, reflecting a higher cap rate environment (Capital Economics, 2024).
- By 2024, cap rates for multifamily, industrial, and office properties had increased by 0.4% or more from the previous year (JPMorgan Chase, 2024).
Future Projections
CBRE (2024) forecasts cap rate compression starting in 2025, with projected reductions in cap rates by property type:
Factors Influencing the Future
- Federal Reserve Policy: Rate cuts expected in 2025 could lower borrowing costs, leading to cap rate compression.
- Market Stability: Investors will be watching inflation and economic growth to gauge long-term real estate demand.
- Property-Specific Trends: Office cap rates remain elevated due to remote work trends, while industrial remains strong.
Conclusion
While cap rates have increased recently, projected interest rate cuts in 2025 may lead to lower cap rates. Investors should consider these trends when making long-term real estate decisions.
