- Despite improving demand in select markets, many office assets are trading at steep discounts, with cap rates nearing 9% for some Class A properties.
- Staffing shortages weigh on senior housing, while high upfront costs and infrastructure needs challenge data centers.
- Multifamily, single-family rentals, manufactured housing, and industrial continue to post low cap rates supported by renter demand and agency lending.
- With interest rate cuts widely expected this month, cap rates could compress further across property types.
Office Still in Flux
Globe St reports that the office sector remains the industry’s weakest link. Elevated cap rates reflect ongoing structural pressures, even as fundamentals show bright spots in certain markets. Manhattan’s availability has dropped to a four-year low—just under 82M SF—but distressed assets are still trading near 9% cap rates, underscoring lingering challenges for trophy properties.
Senior Housing and Data Centers
Both sectors are attracting investor attention but come with clear operational headwinds. Senior housing is constrained by labor shortages, especially in healthcare-trained staff, which limits operators’ ability to scale. Data centers, while in high demand, require substantial upfront capital, reliable access to utilities, and ongoing tech upgrades to stay competitive—factors that push cap rates higher than other growth segments.
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Balanced Middle Ground
Retail, medical office, and self-storage are projected to hold moderate cap rates and steady rent growth. Grocery-anchored shopping centers continue to outperform, while power centers may face higher yields. Medical office demand benefits from demographic tailwinds, while self-storage trends remain tied to housing turnover and relocation patterns.
Residential-Heavy Asset Classes Hold Firm
Multifamily, single-family rentals, manufactured housing, and industrial remain the strongest performers. Cap rates stay compressed thanks to persistent renter demand and the availability of agency-backed financing. Industrial continues to command premium pricing, though future gains may be tempered by tenant credit quality and localized demand factors.
The Macro Backdrop
Investors are keeping one eye on the Federal Reserve. Markets see an 89% probability of a 25-basis-point rate cut at the September 17 meeting, with a smaller chance of a deeper cut. Treasury yields have already fallen, with the 10-year dropping to 4.08%—its second-lowest point in a year. If borrowing costs continue to ease, cap rates across most property types could tighten further.
