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Rising U.S. Interest Rates to Have Minimal Impact on Commercial Cap Rates in Near Term

Rising U.S. Interest Rates to Have Minimal Impact on Commercial Cap Rates in Near Term


According to global real estate advisor CBRE, the impact on U.S. commercial real estate investment activity from the recent rise in the 10-year Treasury will be minimal in the short-term.

Spencer Levy, CBRE's Senior Economic Advisor and Head of Research, the Americas, commented, "Geographic markets with the greatest rent growth will be most resilient in the face of rising interest rates. Industrial, with the strongest investor demand, will be generally more resilient than other asset types. Retail showed the greatest weakness in cap rates in 2017, even before interest rates began to rise. Recent interest rate increases may cause cap rate expansion in retail to accelerate for secondary/weaker assets."

Levy further stated, "Secular factors, particularly the strength of equity capital flows, have upended the historic relationship between interest rates and cap rates. For foreign capital flows, the fall in the dollar is a big offset to rising interest rates."

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