Like most people, I much prefer soda from a bottle than a can. Even though the product inside is identical, the look and feel of the bottle is much cooler and, as a kid, the bottle caps were like souvenirs. I have a jar of hundreds of them that I collected in my childhood stuffed somewhere in my basement.
My bottle-cap collection got me thinking about our H2 2018 Cap Rate Survey. It is the hard work of hundreds of our professionals accumulating real-time transaction information to provide the best summation of the facts on the ground in the commercial real estate industry. But like the bottle caps, while these caps may look the same, they are only as good as the product (the specific real estate asset) in the bottle. The question is: If the product in the bottle changes, do cap rates accurately reflect changes taking place in the market today?
There are two divergent industry trends right now: Office and retail assets are getting less durable, while the cash-flow streams of industrial and multifamily assets are getting stronger. Cash-flow durability of office and retail assets seems less certain today with the rise in shorter-term lease or license agreements in retail, particularly for new developments, and declining renewal rates in office properties. Conversely, cash-flow streams of industrial, whose average lease term is lengthening, and multifamily, whose tenants are staying longer, are getting more durable.
Fortunately, the capital markets see these changes and adjust. The point is simple: Fundamental real estate assumptions are changing fast. CBRE’s H2 2018 Cap Rate Survey is a good resource for you to determine whether the bottle cap matches the product in the bottle.
Have a look inside the bottle and reach out to any of our Capital Markets or Research professionals for additional insight!
By Spencer Levy, Chairman & Senior Economic Advisor, Americas Research, CBRE.