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Will Cap Rates Rise Due To Increasing Interest Rates?

Rising interest rates has investors questioning if cap rates will rise too

  • Interest rates and cap rates are not directly linked

  • Historically there are periods when borrowing costs rise while cap rates fall and vice versa

  • Factors driving cap rate compression unrelated to interest rates:

    • Elevated liquidity and lower global returns -> Hunt for yield

    • Stock market volatility could push investors elsewhere

    • Upside potential for some segments of CRE drawing new capital

  • Focus should be on long-term demographics and the future of commercial real estate

  • Some modest upward pressure could be seen in some markets and property types, but unlikely to see broad-based increases

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