Multifamily Minute Reader Reflections: Where Are Cap Rates Headed?
Our survey of 40,000 multifamily investors asked how capitalization rates for apartment buildings are likely to change in 2023.
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In last week’s Multifamily Minute, our weekly newsletter, we asked our readers an important question about cap rates. Where are they going in 2023?
There’s been a lot of talk that with interest rates rising so, too, will cap rates. Probably. Maybe.
Before we get into the results, throw your email into the subscription form below, and you can add your voice in our future surveys — not to mention get the latest in multifamily insights across the industry, every week on Tuesday.
Now that that’s done, let’s talk about the results. Of our respondents, 62% said that cap rates will likely increase next year — either significantly or by at least a little. Check out the table below for the full results.
Cap Rates Will … | Percent of Respondents |
|---|---|
Increase significantly. | 16% |
Increase a little. | 46% |
Stay the same. | 10% |
Decrease a little. | 20% |
Decrease significantly. | 2% |
I don't know. | 6% |
I don’t think the majority’s voice is too surprising. If you look at how cap rates were reported in the first half of 2022 — as low as 3% in a select number of markets, according to CBRE’s cap rate survey — there isn’t an awful lot of room for further compression. I mean, compare that with the current yield on a 10-year Treasury (as of today, 3.44%).
Even so, not all of our readers feel that cap rates will jump up in tandem with interest rates. A surprising one-fifth said that cap rates may decrease a little bit. Another 2% said they could even decrease significantly.