CBRE Cap Rate Survey – 2nd half of 2013
United States | Overview
The financial markets have seen a whirlwind of volatility in early 2014. In January, fears of slowing growth in the developing countries translated to sharp declines in equity markets. From mid-January to early February, the S&P 500 fell 5.8% before making up for these losses in the latter part of the month. this volatility is part of the nature of publicly traded markets and it is unclear if it was reflected in the performance of commercial real estate.
The REIT world provides a high-frequency view towards the pricing of commercial real estate. As shown in the chart below, pricing trends from the FTSE NAREIT index did not mirror those from the S&P 500 Index during this period of volatility. While the S&P 500 was down 3.6% from December until the end of January, the FTSE NAREIT Index was up 3.2%. In this case, the REIT market simply took a hit earlier than the developing world.
Fear of slowing growth in the developing markets and the fall that the REIT sector experienced in mid-2013 are both tied to the same event: the mid-year taper-tantrum. When the Federal Reserve Bank announced its intention to begin unwinding the Quantitative easing (QE) program, the financial markets reacted sharply with quick upward movements along most of the yield curve.
Based on fears that increases in interest rates would lead to rising debt costs and declining asset values, the REIT world took a pricing hit, with a 15.7% decrease from the end of … (Read and download the original full report here.)