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What Rising Interest Rates Means for Investors and Actions to Implement to Take Advantage Now

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  • Economic growth forecasts continue to revise upward, suggesting 2021 could deliver accelerated investor activity

  • This strong outlook is putting upward pressure on interest rates

  • The interest rate on the 10-Year Treasury more than tripled from 50 basis points last July, to over 1.6% today

  • Cap rates do not always move in tandem with interest rates – the yield spread between cap rates and the cost of capital are beginning to compress

  • Pricing on highly-sought asset classes, like Industrial, Apartments and Self-Storage remains strong

  • Recovery-driven property types like Hotels, Seniors Housing, and Retail, may face increased competition

  • As uncertainty abates, confidence returns and the economy reopens, competition for assets will likely increase

  • Active investors should move quickly while interest rates are still low and activity levels are still recovering

Interest Rates Rising, But Still Historically Low

  • Expectations of accelerating growth have pushed interest rates up over the last 6 months

  • Although interest rates have risen, they remain low by historical standards

Yield Spreads Beginning to Compress

  • Although some investors believe cap rates follow interest rates, the current trend may move counter to this

  • Strong investor appetites will likely sustain pricing pressure on the most in-demand assets and markets

What Investors Should Keep in Mind

  • The low interest rate window is still open – investors should lock-in quickly

  • Consider the supply and demand outlook for each individual asset within a long-term horizon

* 10-Year Treasury through March 16, 2021

Includes apartment, retail, office, and industrial sales $1 million and greater

Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

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