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How Will Real Estate Cap Rates Respond to the Rise in the Fed Funds Rate?

Crow Holdings and the Robert and Margaret Folsom Institute for Real Estate at SMU Cox School of Business are pleased to share the latest whitepaper from Director of Research, Mark G. Roberts, in which he provides a framework for thinking about real estate in this current inflationary environment as the Federal Reserve takes aggressive measures to rein in inflation, driving rapid increases in underlying interest rates.


  • Cap rate-spreads-to-treasury yields have a strong inverse relationship to inflation.
  • Assuming 3% – 5% year-on-year inflation for the near term, cap rate spreads to the 10-year Treasury are expected to range between -0.2% and 1.6%.
  • The NCREIF Cap rates could end up in the range of 4.4% – 5.3% over the next couple of years, up from 4.1% today.
  • Given high occupancy rates and above-average rent growth continuing in some sectors, expect a higher national cap rate of ~4.5%, with the balance coming from value adjustments.
  • Repeating past cycles, the Fed believes it will need to reduce interest rates in 2024.
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