Market Rankings
Q3 2024 Average Cap Rate
Each month we add thousands of data points. For this past quarter, 2 markets had an average cap rate of below 5.3% while 4 markets were above 8%. Cap rates are in a ping-pong mode with swings affected by raising interest rates, tightening lending requirements and weaker demand. The average was 6.63% for Q2 2024, up slightly from 6.57% for Q1 2024.
Q3 2024 Commercial Sales/100k population
Rather that look a just the total number of sales that occur in a market, in order to get a comparable picture, we took the total commercial sales and divided it by the population to get a better picture of what markets are hot and which ones are soft.
Market Summary: Cap Rates up slightly during the 2nd quarter 2024
The data indicates an increase of 56 basis point during the 2nd quarter 2024. The trend has been up for 8 of the past 10 quarters. Hopefully this upward trend is beginning to stabilize leading into Q3 2024.
The upward trend started in Q1 2022. For class For Class A properties, between Q1 24 and Q2 24 apartments were +13 bps, Industrial +15 pbs, retail +8 bps and office +12 bps. There were differences between property types with, for example, the cap rate Q2 2024 for Class A suburban apartments at 6.21% compared to 7.81% for senior housing. Warehouse space 6.60% outpaced flex space 7.99%. Suburban offices (7.14%) and medical offices (7.14%) performed better than CBD office space (7.90%).
Nationwide, total commercial sales volume was down -11.3% from the prior quarter and the average days on the market increase by 16%. Interest rate and political uncertainty appear to be major factors fueling investors’ concerns. Sellers with upcoming loan maturities are adding to market uncertainty.
In order to get a clearer picture of the metro areas, we ranked the areas by average cap rate and sales volume per population. Combining the rankings gives us a picture of market strength (lower cap rate) and momentum (highest sales volume). Some markets appear to have high quality sales with strong tenants but otherwise a low volume of activity. The combined rankings gives us a slightly better snapshot of the overall market strength.