Caps Rates Climbing as Prices Decline

Drop in prices reflect the changes in capital markets. Secondary and tertiary markets have seen prices coming down 10%-20% from the past nine months. Transaction volume has significantly dropped off. The $6.8B in office sales tracked by Real Capital Analytics is one-tenth of the $68B that traded in same period of 2007.

Retail is most worrisome sector nationally with retailers cutting back expansion plans. Apartments, viewed by many investors, are poised to maintain their value through the downturn . Fundamentals for office and industrial are softening. A slowing economy tends to exacerbate price declines by softening demand for space, which dampens rental growth and could reduce income streams. Anything that increases marketability such as property improvements or bringing in higher-paying tenants will help to counteract the effects of marketwide re-pricing.

Source: Harbor Stone Advisors Commercial Group