History has shown that the spread between cap rates and the Treasury yield should thin out, but as we’ve seen, that compression will most likely be the move of both rates.
With both cap rates falling and interest rates rising, just how much lower can the spread between these two figures go before investors begin to push back? Consumer confidence has bounced back and forth from low to moderate levels, there has been a lowering demand for safe-haven U.S. Treasury bills and subsequently it has drivin the yield in an inverse direction.
Commercial real estate seems to have bottomed out. Cap rates for net lease investments stabilized in early 2010 and rapidly compressed over the following 12 months. As the economic world has changed over the past few years, rates and their relationships have changed as fast as dollar-store concepts are expanding.
via Commercial Property Executive- Cap and Interest Rates Face Off