A capitalization rate (cap rate) is the ratio of Net Operating Income (NOI) to property asset value in commercial real estate. Cap rates of net leases in CRE have shown a steady decline in recent years. The Boulder Group recently released a net lease market report about cap rates. This report shows recent trends, future predictions and other statistics. Chris Palmer, an advisor with SVN | SouthLand Commercial in Pensacola, Florida, discusses the report and adds his own take on the situation. Chris discusses The Boulder Group Net Lease Market Report, contributing factors of cap rate compression and other valuable topics in his most recent post. Read the excerpt below and finish reading the rest of the article by clicking the green button at the end of this post.
[bctt tweet=”Have cap rates hit rock bottom?”]
Have Cap Rates Finally Hit Rock Bottom?
The commercial real estate market has shown a steady downfall of capitalization rates, or cap rates, over the past numerous years. After the release of The Boulder Group’s Net Lease Market Report, the net lease cap rate trends may slowly be starting to resuscitate. Follow along as I discuss cap rates, contributing factors to their steady decline, The Boulder Group’s Market Report and my thoughts on the vitality of the net lease cap rates.
What are Cap Rates?
The cap rate of a commercial real estate property refers to the capitalization rate. The cap rate in commercial real estate is defined as the ratio of Net Operating Income (NOI) to property asset value. Net Operating Income is a way to measure how much income a commercial real estate property generates. To calculate NOI, investors, property owners and other CRE professionals subtract operating costs from the overall revenue of a property.
Over the past several years we have seen continuous cap rate compression across virtually all sectors of commercial real estate. There are numerous factors that have contributed to this steady drop, including all-time low interest rates and global economic volatility. These aspects drive both domestic and foreign investors toward net-leased real estate, particularly in the United States…