Cap Rates as an Economic Indicator

by CoyDavidson on September 27, 2011


Cap Rates and Commercial Property Prices

This recent article from the Federal Reserve Bank of San Francisco examines the merit of capitalization rates, the expected returns in commercial properties as an economic indicator. Do the the recent declines in cap rates signal a commercial real estate market that is rebounding?

“The degree to which regional property markets move with the national market is an empirical question. According to our analysis, the national CRE cycle accounts for about two-thirds of the variation in office cap rates across cities over time. For most cities, the national cycle explains around 80% of cap rate movements. However, the nationwide percentage is lower because a few cities have very distinct CRE cycles. For example, Houston CRE prices reflect the energy market, while San Jose and Oakland, California, prices move with the technology cycle. These cities are exceptional. Local factors are less important in most cities, where CRE prices move relatively closely with the national cycle.”

Cap Rates and Commercial Property Prices by Coy Davidson on Scribd

  • Joshua

    Yuck.  What a lame “research paper”.  I swear, the FRB does the most high school research on earth.  Let’s completely ignore the fact that CAP rates are compressed due to their bullshit purchases of UST and MBS.  That has way more to do with CAP rates than “correlations between regional and national markets”.

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