Furthermore, the report states, “We are likely to see buyers press for further price reductions. As we are late in the cycle and fundamentals have weakened in several asset types, we cannot fully separate the interest rate pricing impact from cyclical factors.”

CBRE's report notes that the pricing reaction for closed transactions to-date is similar to, but slightly higher than, the pricing impact the industry saw in the so-called “Taper Tantrum” of 2013 when the Federal Reserve began reducing its quantitative easing stimulus, resulting in a selloff in the bond market and a spike in interest rates. However, CBRE notes that the “Taper Tantrum” occurred at roughly midyear, giving sellers the luxury of waiting it out for a more favorable selling environment.

“By contrast, the spike of 2016 occurred very late in the year and most institutional managers were under pressure to get money out, providing limited leverage to negotiate a re-trade,” according to CBRE. “If this was a factor, it gives credence to our observation that additional price reductions may be in the offing as negotiating leverage shifts slightly from sellers to buyers.”

Additionally, the current interest rate spike was catalyzed by the perception that the Trump administration will team up with the Republican-controlled Congress to pass a pro-business agenda, CBRE says. “If this pro-growth agenda becomes reality, it could improve economic fundamentals generally (increased GDP, employment and consumption growth) and specifically for commercial real estate (increased rent growth as occupier optimism leads to business growth). As such, a greater price decrease may have been mitigated” to an extent by buyers making stronger rent growth assumptions.

Furthermore, with many buyers pricing in an interest rate increase of 20 to 40 basis points, the market anticipated this upward movement to some extent. In fact, though, rates on 10-years shot up by as much as 70 bps—they have since moderated to about 50—leading to an acceleration in re-trade activity.

“A study by CBRE global chief economist Richard Barkham concludes that for every 100-bps movement in interest rates there is a corresponding 70-bps adjustment in cap rates,” according to CBRE. “This price change may take up to 18 months to be fully reflected. However, this effect may be significantly smaller if economic growth expectations remain strong. Dr. Barkham notes that the impact of rising rates can be offset for at least a year by strengthening fundamentals, but that over the long term bond rates will trump short-term fundamental improvements.”

LOS ANGELES—Has the dramatic post-election upward movement of interest rates on the 10-year Treasury affected commercial real estate pricing? It has, but “modestly,” although greater impact may yet occur, CBRE Group said Friday.

In a study, CBRE examined 189 transactions valued at a total of more than $10 billion that have either closed since this past November or are in negotiation. The study focused most closely on the 116 deals that either have closed or have a non-refundable deposit and are proceeding to closing.

Of these, 70% proceeded without any change in price. Among the deals that closed, 63% didn't receive any price adjustment. Of the deals in process with non-refundable deposits, 75% are proceeding without a re-trade. For deals in which price adjustments occurred, these adjustments averaged about 3% and ranged from 0.4% to 11%.

“While the market has shown only limited price movement since the post-election interest rate spike, pricing pushback from buyers remains strong,” says Spencer Levy, CBRE's head of research, the Americas. “Monitoring fundamental indicators such as rent growth and vacancy will be equally important in 2017, as will the trajectory of cap rate movement. In the meantime, we are keenly focused on the policies of the incoming Trump administration, in particular potential tax changes that will impact the commercial real estate industry.”

Furthermore, the report states, “We are likely to see buyers press for further price reductions. As we are late in the cycle and fundamentals have weakened in several asset types, we cannot fully separate the interest rate pricing impact from cyclical factors.”

CBRE's report notes that the pricing reaction for closed transactions to-date is similar to, but slightly higher than, the pricing impact the industry saw in the so-called “Taper Tantrum” of 2013 when the Federal Reserve began reducing its quantitative easing stimulus, resulting in a selloff in the bond market and a spike in interest rates. However, CBRE notes that the “Taper Tantrum” occurred at roughly midyear, giving sellers the luxury of waiting it out for a more favorable selling environment.

“By contrast, the spike of 2016 occurred very late in the year and most institutional managers were under pressure to get money out, providing limited leverage to negotiate a re-trade,” according to CBRE. “If this was a factor, it gives credence to our observation that additional price reductions may be in the offing as negotiating leverage shifts slightly from sellers to buyers.”

Additionally, the current interest rate spike was catalyzed by the perception that the Trump administration will team up with the Republican-controlled Congress to pass a pro-business agenda, CBRE says. “If this pro-growth agenda becomes reality, it could improve economic fundamentals generally (increased GDP, employment and consumption growth) and specifically for commercial real estate (increased rent growth as occupier optimism leads to business growth). As such, a greater price decrease may have been mitigated” to an extent by buyers making stronger rent growth assumptions.

Furthermore, with many buyers pricing in an interest rate increase of 20 to 40 basis points, the market anticipated this upward movement to some extent. In fact, though, rates on 10-years shot up by as much as 70 bps—they have since moderated to about 50—leading to an acceleration in re-trade activity.

“A study by CBRE global chief economist Richard Barkham concludes that for every 100-bps movement in interest rates there is a corresponding 70-bps adjustment in cap rates,” according to CBRE. “This price change may take up to 18 months to be fully reflected. However, this effect may be significantly smaller if economic growth expectations remain strong. Dr. Barkham notes that the impact of rising rates can be offset for at least a year by strengthening fundamentals, but that over the long term bond rates will trump short-term fundamental improvements.”