In the multifamily realm, particularly within the higher-rated four and five-star segments, those generally favored by institutional investors, cap rates have risen by about 160 basis points from late 2021. The current spread over U.S. Treasuries is a mere 90 basis points, significantly below the long-term average spread of 277 basis points since 2000.
This compression suggests that investors were anticipating significant rate cuts by the Federal Reserve that would depress Treasury yields and, in turn, lower cap rates. Recently, however, with the prospects of near-term rate cuts fading coupled with slowing income growth, investors seem to be reassessing the adequate premium over Treasuries for apartments.
Source: CoStar News – Capitalization Rates Head for Higher Ground
