Recent Trends
'The National Council of Real Estate' Investment Fiduciaries in a Sept 30, 2007 report reported that for the prior year, for all properties income return was 5.7% and the appreciation return was 11.1%.
A Wall Street Journal report using data from Real Capital Analytics and Federal Reserve showed that from the beginning of 2001 to end of 2007, the cap rate for offices dropped from about 10% to 5.5%, and for apartments from about 8.5% to 6%. At the peak of the real estate bubble in 2006 and 2007, some deals were done at even lower rates: for instance, New York City's Stuyvesant Town and Peter Cooper Village apartment buildings sold at a cap rate of 3.1% based on highly optimistic assumptions. Most deals at these low rates used a great deal of leverage in an attempt to lift equity returns, generating negative cashflows and refinancing difficulties.
As U.S. real estate sale prices have declined faster than rents due to the economic crisis, cap rates have returned to higher levels: as of December 2009, to 8.8% for office buildings in central business districts and 7.36% for apartment buildings.
Read more about this topic: Capitalization Rate
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