How Interest Rates Impact Different Property Types
By Crew Enterprises
Table of Contents
Introduction
Not all real estate sectors react to interest rate changes in the same way. While some property types show a strong correlation between interest rates and cap rates, others are less affected due to unique market dynamics.
Cap Rate Sensitivity by Property Type
A study by CBRE (2024) analyzed how cap rates respond to a 100-basis-point change in the 10-year Treasury yield:
10-Year Treasury Yield
| Property Type | Cap Rate Movement (bps per 100 bps treasury yield change |
| Industrial | 41 |
| Retail | 78 |
| Office | 70 |
| Multifamily | 75 |
Key Insights
- Industrial Properties: These are the least sensitive to interest rate changes due to strong demand from logistics and e-commerce sectors.
- Retail and Office Properties: Higher sensitivity reflects economic uncertainty and changing work/consumer habits.
- Multifamily Properties: Moderate sensitivity, but still affected by financing conditions and demographic trends.
Why Does This Matter?
Understanding cap rate sensitivity helps investors allocate capital effectively. For instance, industrial properties may remain attractive even during rising interest rates due to strong demand fundamentals.
Conclusion
By focusing on property types with lower interest rate sensitivity, investors can mitigate risk during periods of economic uncertainty.
