No Change
In conclusion, the market has shown only limited price movement since the post-election interest rate spike. Given where we are in the cycle, it is difficult to determine whether those transactions that re-priced did so because of the change in the cost of capital or because of fundamental cyclical concerns. Monitoring fundamental indicators (rent growth, vacancy) will be at least as important in 2017 as will the trajectory of cap rate movement. Most market participants believe the Fed will be true to its word and raise short-term rates three or four times (75 bps to 100 bps total) in 2017. The CBRE Econometric Advisors model suggests a year-end 10-year Treasury rate of approximately 3%. Keep in mind that investors have consistently been wrong about the Fed’s intentions for the past few years. Furthermore, the Fed’s rate increases will only directly impact the short-end of the curve. Long-term rates are impacted by global events over which the Fed has limited control. CBRE will continue to monitor price movements and report our findings as circumstances warrant. In the meantime, we are keenly focused on the policies of the incoming Trump administration, in particular potential tax changes that will impact the commercial real estate industry. We will publish another report and conduct a conference call on this topic as policy choices become clearer. |
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Capital Markets and VAS Conctacts:
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Research Contacts: Spencer G. Levy Americas Head of Research +1 617 912 5236 [email protected] LinkedIn | Twitter Jeffrey Havsy Chief Economist | Managing Director CBRE | Americas Research | Econometric Advisors +1 617 912 5204 [email protected] Serguei Chervachidze, Ph.D. Head of Forecasting | Senior Economist CBRE | Americas Research | Econometric Advisors +1 617 912 5218 [email protected] |
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