The apartment and office sectors saw decreases in capitalization rates during the third quarter, but the rate of compression has leveled off throughout the year, according to data from Reis, a New York-based real estate analysis firm, MBA NewsLink reported Dec. 13.
The apartment average cap rate has continued to drop since the third quarter of 2009 and now remains at 6.3 percent, down 40 basis points since the second quarter, MBA NewsLink reported.
“With the apartment mean cap rate bouncing around a bit over the last year, the 12-month rolling cap rate has flattened and is virtually unchanged over the last year,” Ryan Severino, senior economist for Reis, told MBA NewsLink. “This indicates there has been some moderation in transaction pricing for apartment properties in recent quarters.”
“It's difficult to tell if declining apartment cap rates during the third quarter was idiosyncratic, or if it’s the start of another leg down in cap rates,” Severino told MBA NewsLink.
Severino predicted that in 2013 the 12-month rolling cap rate for apartments will remain the same, but he noted that quarter-to-quarter fluctuations are likely.
As for office properties, the average cap rate was down 20 basis points during the third quarter to 7.6 percent.
“This is a bit of a reversal after office cap rates have been climbing for the last few quarters, but the mean office cap rate still remains above where it was during the first quarter of this year,” Severino told MBA NewsLink.
The office segment also saw some restraint in cap rate compression throughout the year.
“For further evidence in support of this assertion we can examine the 12-month rolling cap rate,” Severino told MBA NewsLink. “The 12-month rolling cap rate continues its gradual upward trend that began in the third quarter of 2011.”
Severino noted that while cap rates have not compressed as much for commercial properties as they have for multifamily properties, he said that “they are down a respectable amount considering that office fundamentals have not performed anywhere near as well as apartment fundamentals over the last two and a half years,” MBA NewsLink reported.
There still is greater room for cap rate compression in the office sector than in the apartment sector, Severino noted.
“However, we do expect the 12-month rolling cap rate for office to remain virtually unchanged over the next year,” Severino told MBA NewsLink.