by Bill McBride on 10/12/2009 06:42:00 PM
Monday, October 12, 2009
From CB Richard Ellis: U.S. Retail Cap Rates
Ending at 8.71%, cap rates were up again. The 59 basis point gain is the largest quarterly increase we have ever measured, even trumping last quarter's previous record.Click on graph for larger image in new window.
This graph from CBRE shows the retail cap rate since 2003. Note that 2009 is an average of Q1 through Q3, and the cap rate in Q3 was at 8.71% - above the 2003 annual level.
Sharply higher vacancy rates, lower rents, reduced leverage and much higher cap rates - this is what Brian calls the "neutron bomb for RE equity"; destroys CRE investors (and lenders), but leaves the buildings still standing.
Cap Rate: the net operating income divided by the current value (or purchase price). Net operating income excludes depreciation and interest expenses. Say an investor paid $100 thousand in cash for a retail property, the investor would expect to clear $8,710 in cash per year after expenses with an 8.71% cap rate (the $8,710 is before paying income taxes that depend on financing and depreciation).
Posted by Bill McBride on 10/12/2009 06:42:00 PM