3 Oct 2019
Market Metrics: Commercial Property
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
Cap rate (capitalisation rate) is the term used to indicate the rental return that is expected to be generated on commercial real estate investment property.
It is almost never used in reference to residential property.
The movement of cap rate over time is also used to give a direction on the price of commercial real estate investment property.
For instance, if the cap rate is falling then this indicates that the price of office, retail, industrial property is climbing and if the cap rate is rising then price of real estate investment property is dropping.
The attached research shows that the valuation of office, retail, industrial property has now stretched passed the 2007 high which was just before 2008 Global Financial Crisis and when cap rates where at their lowest this century.
We are not recommending buying or selling commercial real estate investment property. Instead we are pointing out the fact that it is not cheap.
Click for chart.
Importantly, the key thing to remember is that when fear and panic take hold, that is when an investor is presented with the best opportunity to buy more quality assets at reasonable or better still discounted prices.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.