This time, it’s different. Part of the reason is because of the accelerated rate of interest rate hikes by the Federal Reserve. “Currently, amid the fastest monetary tightening on record, cap rate trajectories may differ substantially from those of past inflationary periods,” McKinsey says.
Year-to-date, Prime US REIT (SGX:OXMU
) has fallen 44%, Manulife US REIT 43% and Keppel Pacific Oak US REIT 30%. But United Hampshire US REIT (SGX:ODBU) is unchanged since the start of the year. There is another seven months to go, so anything can happen, but here’s why this trend has persisted for the first five months of the year.
According to McKinsey, US commercial real estate (CRE) has outperformed during inflationary periods since 1980. During each of these periods, although rent growth did not keep up with inflation, cap rate compression contributed to outperformance, McKinsey’s research found.
