Are cap rates still compressing?

Great responses so far. Always interesting to see what other people in the industry are thinking about this topic. It comes up a lot in my shop.

I’ve always found cap rate trends to be a fairly elementary and sometimes misleading way to try to figure out what’s going on in real estate. I’m much more interested in the return metrics (IRRs) investors are solving for. I would say overall, these continue to compress due to the amount of dry powder still out there.

The obvious next question is then what does this mean for transaction prices. The general consensus is that everyone is being more conservative on the rent growth side and as we know, interest rates are rising. Does this mean transaction prices are decreasing? Not necessarily.

While somewhat of a non-answer, it’s still very asset type specific. We are seeing incredible interest for well-located value-add deals and less interest on the more commodity like stuff, speaking to multifamily specifically. Numerous sellers still have unrealistic pricing expectations, but deals are getting done.

If I had to make an overarching statement, I’d say pricing is still rising, due almost purely from an abundance of capital. And I don’t see that changing anytime soon.

Quick caveat: on the development side, we are seeing construction costs rise incredibly quick. I think this will continue to put downward pressure on supply and ultimately lead to even more rent growth/price inflation as markets absorb their current pipelines. This of course assumes no large capital shifts.

Got on a bit of a tangent but thanks for an interesting topic, OP!