Prudent Growth Partners, LLC  (2017)    1829 E. Franklin St, Suite 800-F, Chapel Hill, NC 27514  (919) 590-4119

August 28, 2019

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Interest Rate Hikes May Have More Impact on Deal Volume Than Cap Rates in 2017

 

Good article from National Real Estate Investor's site on the likely impact on Cap Rates of the Fed's current policy of slow and steady increases.

 

In short, the immediate impact on Cap Rates is likely to be minimal.  The fundamentals of strong rental demand, a growing economy, and still low interest rates (when viewed over the past several decades) will continue to attract investors looking for long term yield.

 

From the article:

 

Interest rate increases in 2017 are expected to have less of an effect on cap rates than originally predicted, with experts forecasting that the current flat cap rate environment will continue. In this environment, sources say investors should instead watch out for the effects that interest rate increases will have on deal volume....

 

With the industry seeing a 75 percent chance of an interest rate increase in May/June and possibly one in March, the cap rate risk premium will continue to narrow, but not to an extreme degree, according to Ryan Severino, chief economist with commercial real estate services firm JLL. “There has already been a good deal of cap rate compression this cycle, and as the Fed starts to raise rates there is still some room for spread, so I don’t think we will see a lot of downward pressure on cap rates this year. Until we start to see more clarity from government policy, we are probably going to see more of the same flat cap rate environment,” he says.​...

 

Full Article Here:  http://nreionline.com/investment/interest-rate-hikes-may-have-more-impact-deal-volume-cap-rates-2017 

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