While the 12-month rolling average cap rate in multifamily was essentially unchanged, that of office rose slightly from 7.1% to 7.2%, a top-line figure underpinned by greater volatility in cap rates. At the same time, the sector's average cap rate, which had risen 40 bps in Q1, fell 20 bps to 7.2% in Q2.

The consistency in the 12-month rolling office cap rate “has defied the tightening in monetary policy,” writes Denham. However, she adds, “the flat trend also mirrors the low but steady office rent growth trend.”

Office cap rates have stayed higher than those in multifamily, and, in contrast to the apartment market, have remained higher than they were two years ago. “Still, since 2013, the 12-month rolling average has stayed below the 10-year average,” Denham writes.

By comparison to multifamily and office, the trend line for cap rates for retail shows “somewhat surprising results,” writes Denham. While the mean retail cap rate rose 20 bps to 7.7% during Q2, “the 12-month rolling average is still trending downwards. At 7.6%, the 12-month rolling average is still only 10 bps above the average of 7.5%” seen in '15.

Denham points out that retail property sales volume fell by 15% in Q2 and by 25% on a year-over-year basis. “Thus, fewer properties are trading and the relatively subdued cap rates suggest that there is selection bias in these results in that only properties at the upper end of the spectrum are likely trading.”

NEW YORK CITY—Three commercial property sectors, three different cap rate stories amid the same three increases in the federal funds rate over a six-month period. What these stories have in common is that they did not play out in lockstep with the Federal Reserve's 25-basis point rate increases this past December and in June and March of this year. “Although cap rates tend to rise with interest rates, the causation is not as direct as the theory would suggest,” writes Barbara Denham, senior economist with Reis.

In three separate reports focusing on cap rates in the multifamily, office and retail sectors, respectively, Denham reports that mean cap rates actually showed declines for multifamily and office during Q2 and a downward trend in the 12-month rolling average for retail, by which point two of the Fed's three rate increases would already have gone into effect. From there, though, the longer-term stories diverge.

For apartment properties, mean cap rates dropped 30 bps to 5.7% after remaining flat at 6% for three previous quarters. “One could argue that investors look to the apartment market as a safer investment when interest rates climb and this would lower cap rates,” writes Denham.

In fact, she continues, “This is loosely what we have seen here this past quarter along with the usual selection bias, in that these cap rates reflect the properties that traded in the quarter, and the properties that traded were likely 'better' properties in safer submarkets relative to previous quarters. This selection bias has kept cap rates lower throughout the year.” Just as Q2 saw an increase in effective rent growth, so it also saw a slight increase in transaction volume, although year-to-date sales volume lags behind the levels reached in 2015 and 2016.

While the 12-month rolling average cap rate in multifamily was essentially unchanged, that of office rose slightly from 7.1% to 7.2%, a top-line figure underpinned by greater volatility in cap rates. At the same time, the sector's average cap rate, which had risen 40 bps in Q1, fell 20 bps to 7.2% in Q2.

The consistency in the 12-month rolling office cap rate “has defied the tightening in monetary policy,” writes Denham. However, she adds, “the flat trend also mirrors the low but steady office rent growth trend.”

Office cap rates have stayed higher than those in multifamily, and, in contrast to the apartment market, have remained higher than they were two years ago. “Still, since 2013, the 12-month rolling average has stayed below the 10-year average,” Denham writes.

By comparison to multifamily and office, the trend line for cap rates for retail shows “somewhat surprising results,” writes Denham. While the mean retail cap rate rose 20 bps to 7.7% during Q2, “the 12-month rolling average is still trending downwards. At 7.6%, the 12-month rolling average is still only 10 bps above the average of 7.5%” seen in '15.

Denham points out that retail property sales volume fell by 15% in Q2 and by 25% on a year-over-year basis. “Thus, fewer properties are trading and the relatively subdued cap rates suggest that there is selection bias in these results in that only properties at the upper end of the spectrum are likely trading.”