Can Cap Rates Go Lower?
Can’t make sense of this market. On one hand, you have record dry powder sitting on the sidelines, increased international interest in US RE that’s very willing to accept a low cap for “safety,” and low IR.
On the other, you have IR risk on the horizon, and pricing exhaustion from investors.
5 years ago, and 10 year ago before that, we all didn’t think cap rates should go lower, but alas. Where you do think Cap Rates go from here?
They can go lower. Capital has to be deployed and the competition for non-RE private investments is only increasing . The situation reveals deep problems in the economy and a lack of innovation/technological progress that we are trained to ignore to the extent possible.
Short answer: always
Always what ? The fuck?
Yes, go look at cap rates in Hong Kong (at least pre-China take over during Covid), cap rates averaged in the 2-3% range for many asset types (with individual assets trading with a 1 handle at times)... they can fluctuate up a lot too.
And ponder this.... Hong Kong pegs their currency to the US dollar... so our monetary policy and fed rates are basically theirs!
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