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  • This declining trend in apartment cap rates is a familiar yet somewhat unexpected story. As expected, the Fed did raise its overnight borrowing rate by 25 basis points in December, yet the average apartment cap rate declined in the quarter by 20 basis points to 5.7%, the lowest ever. In short, the average apartment cap rate is defying conventional wisdom that cap rates move with interest rates....

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  • To get a better perspective of the apartment cap rates across the U.S., we look towards the 12-month rolling average cap rates by region. Overall, the trends have not changed much. Nearly all of the regions showed a slight decline in cap rates with the largest drop in the very volatile Southwest region where Texas plays a large role.

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  • The office market experenced a significant jump in the fourth quarter cap rate to 8.4%. Office cap rates have seen far more volatility than apartment cap rates. They have also increased consistently now for three straight quarters. The office cap rate is a full 150 basis points higher than it was one year ago when it bottomed at 7.0%. The 12 month rolling average increased to 7.7% from 7.4% las...

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  • Breaking out the national office trend line by region, we see how cap rates increased in every region except the Southwest and the Midwest. Both of these regions make up a small portion of the overall total volume. The Northeast and West account for two-thirds of the total sales volume, and both saw a proportionate increase in cap rate in the quarter. The biggest increase was found in the South...

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  • The retail cap rate trends show an odd pattern, but cap rates clearly increased in the fourth quarter to 7.8% from 7.4% in the third quarter. Given all of the store closures in 2017 and announcements of still more closures in 2018, one would expect retail cap rates to be consistently higher throughout this past year, similar to what we saw for the office sector.

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  • The Industrial sector has captured significant investor interest over the last year given the expansion of e-commerce and warehouse/distribution space. Industrial cap rates had been volatile over the prior nine months, but the mean cap rate increased ten basis points to 7.6% in the fourth quarter.

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  • In a market like New York, contending with record levels of new supply growth, the situation may be more challenging than in other metros. Already, New York ended 2017 at 5.5% vacancies – which is fairly low for markets in Florida, but a veritable disaster for a low vacancy market like New York.

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Blog Post
  • National Apartment vacancies rose to 4.5% in the fourth quarter, ending the period at 30 basis points up, year over year. Asking and effective rents both rose by 0.5%, putting the year over year growth figure at 4.2%, and 3.6%, respectively. It is interesting to note that asking rents grew slightly faster this year at 4.2%, relative to 2016’s 4.0%. However, the more telling performance measure ...

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  • Office vacancies were flat for three straight quarters in 2017, stuck at 16.4%. Vacancies actually rose in 2017, rising by 20 basis points year over year. With asking and effective rents both rising at only 0.6% in the fourth quarter, we ended 2017 at 1.8% year over year – which is the weakest rent growth for the office sector since the recovery began in 2011.  

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  • In Retail, the flatness and lack of positive momentum is felt even more than other commercial real estate sectors. Neighborhood and community shopping center vacancies rose by 10 basis points year over year to 10.0%, stuck since the second quarter of 2017. Asking and effective rents also came in at around the same level, or slightly slower, than the previous year – at 1.8 and 1.9% respectively....

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  • The Industrial sector continues to benefit from relatively strong trade numbers, and the growth in online sales. Flex/R&D vacancies fell to 9.7%, a 20 basis point drop versus the third quarter, and a 90 basis point drop year-over-year. Warehouse/Distribution vacancies fell to 8.9%, a 10 basis point decline over the quarter, and a 70 basis point drop year-over-year. Effective rents grew by 1.0% ...

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  • Occupancies fell again in the fourth quarter, as expected, to 88.4 percent. That in itself is not groundbreaking, given how seasonal weakness tends to make itself felt in the colder months of the year. The worrisome trend is that this is the first year that occupancies have actually deteriorated year over calendar year – despite seasonality within quarters we tend to end with stronger occupanci...

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  • What do we make of rising vacancies in Senior Housing? First, that we always tend to teeter on oversupply for this sector, given how challenging it is to estimate actual demand from the senior population – most of whom tend to hold on to their multifamily or single-family homes as long as they can.

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