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