The biggest declines in cap rates during H2 were for industrial and logistics assets, which tightened by 13 basis points to 6.52%. “The industrial and logistics sector has performed exceptionally well, though the best product—big box warehouse distribution in major markets with large credit tenants—is now unlikely to see further cap rate compression,” says Jack Fraker, global head of industrial & logistics. There's also increased institutional attention to “smaller 'last mile' sites that benefit from both e-commerce and the growth of new local industries,” he adds.

While the industrial sector saw the greatest compression in cap rates, multifamily continued to post the lowest rates of any major property sector—historically low, in fact at 5.23% for infill properties and 5.59% for suburban. “Multifamily is showing continued strength with a significant capital shift underway towards secondary and suburban markets,” says Brian McAuliffe, president, institutional properties, capital markets. Accordingly, he says, “cap rate compression could occur even in the face of any modest continued upward interest rate movement.”

Hotel cap rates held largely steady in H2, with slight upward or downward movement ranging from minus three bps to plus six bps across chain scales and geographic regions. Observes Kevin Mallory, global head and senior managing director, CBRE Hotels, “The hotel sector continues to benefit from investors seeking yield premiums over other asset classes, despite slowing growth rates in underlying fundamentals. We are sensing renewed optimism around pricing power for operators in 2018. Interest from all equity types continues to be strong, enhanced by a perceived strengthening in fundamentals driven by optimism from the tax overhaul.”