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Cap Rate Compression Expected to Drive Investment Growth in 2025

Repricing and clarification on government policy should keep valuations steady.

By Erik Sherman | April 01, 2025 at 04:43 AM

The macroeconomic environment has been marked by unusual trends, with short- and long-term interest rates diverging in behavior, as CBRE recently observed. Despite these complexities, there are reasons for optimism in the commercial real estate market, particularly regarding cap rate compression.

CBRE anticipates some degree of cap rate compression this year, which could serve as a key incentive for investors. Under current conditions, this scenario is more likely to occur in the year’s second half. However, if bonds rally and the broader macroeconomic environment remains favorable, investment activity could accelerate earlier in the year. While there is potential for cap rates to compress more than expected, this is likely to be limited because interest rates are unlikely to return to their pre-pandemic lows.

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