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Are capitalization rates headed up or down?

Tuesday, November 25th, 2008

In our weekly Redstone brokerage meeting the topic of capitalization rates (CR) came up as one of our brokers stated that in the Boston market CR’s have risen by 150 to 200 basis points under market pressures. This means that an investment property that might have been at a 6% CR a year ago may now be trading at 8% providing a lower selling price and perhaps a better value for the Buyer. But is this really the trend we might expect as other investments like the stock market continue their volatility?

Another view is that a solid real estate investment property would become more valuable as market risks continue and thus CR’s could hold or even be reduced as investors compete for more predictable returns through commercial property ownership. What trends might we expect to see? Is the Vermont market place different from what we are seeing elsewhere?