Cap Rates post-COVID
The 2008 recession precipitated the longest bull run in US equities. COVID has pushed governments to increase public spending and broadened the scope of what the market sees as acceptable (read: required) behaviour. Interest rates are not in free fall, but they are clearly dropping and/or at historic lows worldwide. But everyone knows these things. My question is: what do you guys think will happen with cap rates?
IMO, I think we're going to see a compression in certain asset classes (for example rental), as pension funds & large megacorp's that measure their performance largely in terms of dividend $ & yield look for steady income / returns. I've already heard rumors about cap rates on downtown rental bldgs at sub-3%. I think the influx of cash on everyone's balance sheet is going to push what we consider to "make sense".
Condo's and/or Townhouses I think will be driven less and less by job numbers, and instead, by quality of life in the city/area. As life gets back to "normal", I could see bigger companies move towards having permanent flexible work policies (some days in the office, some days at a WeWork desk, some days at home), leading people to re-evaluate their CoL and adjust where they live accordingly. Who wants a 400 sf studio?
I do question B & C class office performance.
I think anytime you start to talk industrial, everyone assumes it'that takes your +50,000 SF warehouse which doesn't feel like an honest conversation. So location, build quality, and market saturation are big factors for me.
Retail I wouldn't touch with a 10ft pole not because I think it's going to disappear, but I'd hate to try to time the bounce back for that asset.
Hotel: right now its the captain with the brown pants. I think inevitably will return, but again timing that seems stressful.