With the holiday season in full swing, the country will be waiting to see if the Fed will increase interest rates during their meeting on December 14th. Following Trump's presidential election victory, we have seen a surge in S&P, Dow Jones, and Nasdaq. The Dollar has also advanced and we've seen a rise in bond yields. Meanwhile, cap rates have continued to compress this year, with some STNL properties trading at record low cap rates. Clearly, that trend can't hold on for much longer, a tune we've all been singing for a while.
A major indicator for a rate hike is inflation, which is getting close to Fed's target rate of 2%. The unemployment rate dipped to 4.9% in October, evidencing near full employment. In the 12 months ending in October, CPI advanced by 1.6%. Consumer confidence is also up. The FedWatch Tool published by the CME Group shows that, should there be a rate move in December, there is a 96.3% chance that the target rate will be in the 50-75 bps range and just a 3.7% chance that the range will be in 25-50 bps.
The average cap rates for STNL through 2016 Q3 was 6.34%, a 20 bps drop year-to-date. Stores such as McDonald's and Chick-fil-A traded around a 4% cap rate this year, with caps in the mid to high 3% in California and Florida. The ten-year T-Bills closed at 2.31% on November 29, 2016.
Healthy economic data suggests that an interest rate hike is imminent with a strong possibility of that occurring in the coming weeks. We expect cap rates to mirror interest rate movements and see cap rates growth in the next year, particularly since we are already at a historic all-time low.
With the holiday season in full swing, the country will be waiting to see if the Fed will increase interest rates during their meeting on December 14th. Following Trump's presidential election victory, we have seen a surge in S&P,
A major indicator for a rate hike is inflation, which is getting close to Fed's target rate of 2%. The unemployment rate dipped to 4.9% in October, evidencing near full employment. In the 12 months ending in October, CPI advanced by 1.6%. Consumer confidence is also up. The FedWatch Tool published by the CME Group shows that, should there be a rate move in December, there is a 96.3% chance that the target rate will be in the 50-75 bps range and just a 3.7% chance that the range will be in 25-50 bps.
The average cap rates for STNL through 2016 Q3 was 6.34%, a 20 bps drop year-to-date. Stores such as McDonald's and Chick-fil-A traded around a 4% cap rate this year, with caps in the mid to high 3% in California and Florida. The ten-year T-Bills closed at 2.31% on November 29, 2016.
Healthy economic data suggests that an interest rate hike is imminent with a strong possibility of that occurring in the coming weeks. We expect cap rates to mirror interest rate movements and see cap rates growth in the next year, particularly since we are already at a historic all-time low.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
