Interest Rates and CAP Rates
Heard on the street. Higher interest rates may not drop property prices ....as fast. Increasing interest rates might not cause a significant drop in commercial investment property prices. A recent Korpaca Investor Survey projected that if interest rates rose substantially, leveraged buyers would step aside. But that would pave the way for all-cash buyers, such as pension funds to become active buyers.
Meanwhile, commercial real estate continues to attract new sources of capital - a phenomenon that should translate into capitalization rates lagging any increases in interest rates.