Cap rate effects on Commercial Real Estate

Long term leases have a stabilizing effect on cap rates for Austin office space or warehouse property. Cap rates on commercial real estate typically lag interest rates and money markets by at least 6 months on a mid sized investment and up to one year on larger investments.  In other words cap rates (values) of commercial real estate do not move as quickly as bank rates or money market rates.  Office space and warehouse space lease rates do not change every time there is an interest rate change in the market. So keep in mind a cap rate is going to change more slowly and is a lagging indicator.

Interest rate affects on Commercial Real Estate

When interest rates rise, investors for commercial real estate may expect a lower cap rate on an Austin office property or warehouse investment . On the flip side, when interest rates are declining, most investors expect higher cap values. Stocks and real estate have been described as inverse of each other, higher stocks correlates to lower real estate values. Commercial Real Estate is often seen as a flight to safety if stocks are declining. All of these factors can affect the cap rate on an office property investment or warehouse investment.

 

• Current interest rates
• Ratio of mortgage money to fair market value- Loan to value
• Amortizations available
• Balloon or maturity dates
• Market conditions
• Forecasted market changes
• Yield
• Other investments that compete with commercial real estate

 

Shire Commercial represents Buyers in finding the right properties and helping clients execute an investment or purchase on office properties , office condos or warehouse space in the Austin, Texas area.