Brief | Intelligent Investment

Office Cap Rates Remain Relatively Stable on Limited Transaction Volume in Q1 2021

National Office Cap Rate Report

National office cap rates remained close to historical averages in Q1 2021, with a current average cap rate of 7.02% compared to the trailing seven year average of 7.03%.  Although the current figure represents an uptick over the prior quarter, this change was driven by the widening of the asset transaction pool rather than market sentiment. In much of 2020, for an office building to sell in a market-based transaction it needed significant credit tenancy with a long, weighted-average lease term remaining. The market requirement on credit tenancy loosened somewhat in Q1 2020, allowing buildings with more typical tenant profiles to potentially transact. This, combined with historically low transaction volume in the office sector, contributed to the increase in average rate. Investor sentiment is trending positively at the of Q1 2021, as more of the population is vaccinated against COVID-19 and office tenants are working toward formalizing reentry plans.

Source: Valuation VIEW
Data points are confirmed closed transactions adjusted for assumed financing and reflect overall market trends.

U.S. Office Cap Rate Trends