Despite ongoing volatility in Treasury yields, U.S. cap rates have shown signs of stabilization, according to CBRE’s H2 2024 Cap Rate Survey.

Investor Sentiment Shifts

CBRE’s survey, covering 3,600 cap rate estimates across 50+ markets, highlights a shift in investor sentiment. Most respondents believe cap rates have peaked, offering a critical benchmark for assessing market trends as 2025 approaches.

Market Resilience

While Treasury yields fluctuated, with the 10-year Treasury reaching 4.7% in April before falling to 3.6% in September and rising again due to Fed policy signals, cap rates remained largely stable. Industrial and multifamily sectors saw slight declines, whereas office cap rates increased due to ongoing distress.

Office Sector Struggles

Cap rate spreads for office properties widened in H2 2024, reflecting rising uncertainty, particularly for Class B and C assets. Class A office cap rates have surpassed 8%, while distressed Class C properties are experiencing rates in the low teens.

Market Adjustments and Outlook

Following a steep 51% drop in 2023, CRE transaction volume rebounded by 9% in 2024, signaling renewed investor confidence. Fewer investors anticipate further cap rate increases, suggesting that the market has largely adjusted to higher borrowing costs. However, policy uncertainties and inflation remain factors that could influence future cap rate movements.

Key Takeaway

While cap rate expansion appears to be slowing, uncertainty persists, especially in the office sector. With improving sentiment and expectations for greater transaction activity, 2025 could see a more dynamic investment landscape.