Cap rates in the U.S. multifamily real estate sector have increased significantly since 2021, reflecting a rise in borrowing costs. In 2023, the average multifamily cap rate was **** percent, up **** percent in 2021, when it was at its low. By 2026, the average multifamily cap rate is forecast to decline slightly, to **** percent.

Retail properties had the highest capitalization rates in the United States in 2023, followed by offices. The cap rate for office real estate was **** percent in the fourth quarter of the year and was forecast to rise further to **** percent in 2024. Cap rates measure the expected rate of return on investment, and show the net operating income of a property as a percentage share of the current asset value. While a higher cap rate indicates a higher rate of return, it also suggests a higher risk. Why have cap rates increased? The increase in cap rates is a consequence of a repricing in the commercial real estate sector. According to the National NCREIF Property Return Index, prices for commercial real estate declined across all property types in 2023. Rental growth was slow during the same period, resulting in a negative annual return. The increase in cap rates reflects the increased risk in the investment environment. Pricing uncertainty in the commercial real estate sector Between 2014 and 2021, commercial property prices in the U.S. enjoyed steady growth. Access to credit with low interest rates facilitated economic growth and real estate investment. As inflation surged in the following two years, lending policy tightened. That had a significant effect on the sector. First, it worsened sentiment among occupiers. Second, it led to a decline in demand for commercial spaces and commercial real estate investment volumes. Uncertainty about the future development of interest rates and occupier demand further contributed to the repricing of real estate assets.

Multifamily property prices climbed to record levels in recent years amid low interest rates and surging housing demand. More recently, prices have retreated in the face of higher interest rates, slower rent growth, elevated operating expenses, and increased delivery of new units available for rent. However, the deterioration in these fundamentals does not fully explain recent property price declines, suggesting investors’ near-term outlooks have been pessimistic.

The Canadian commercial real estate market, valued at $77.09 billion in 2025, is projected to experience robust growth, driven by a Compound Annual Growth Rate (CAGR) of 7.59% from 2025 to 2033. This expansion is fueled by several key factors. Increased urbanization in major cities like Toronto, Vancouver, and Calgary is creating higher demand for office, retail, and multi-family spaces. Furthermore, a burgeoning technology sector and a growing population are bolstering the need for modern and efficient commercial properties. The industrial sector is experiencing significant growth due to e-commerce expansion and the related need for logistics and warehousing facilities. While rising interest rates and potential economic uncertainties present some headwinds, the strong fundamentals of the Canadian economy and continued investment in infrastructure projects are expected to mitigate these risks. The market is segmented across various property types, including office, retail, industrial, multi-family, and hospitality, with significant activity across key cities such as Toronto, Vancouver, Calgary, Ottawa, Montreal, and Edmonton. Leading players like Cominar REIT, Goodman Commercial, and Dream Office REIT are shaping the market landscape, while emerging companies and startups contribute to innovation and competition. The forecast period of 2025-2033 suggests continued expansion, with a projected market size exceeding $130 billion by 2033, assuming a consistent CAGR. This growth trajectory is expected to attract further investment and development, particularly in sustainable and technologically advanced commercial buildings. However, factors such as fluctuating energy prices, evolving work patterns (e.g., remote work trends impacting office demand), and potential regulatory changes will need to be monitored to ensure accurate projections and informed investment decisions. The dynamic nature of the market necessitates continuous evaluation of macro-economic conditions and micro-market specific factors to achieve accurate forecasting and strategic planning. Recent developments include: June 2023: Prologis, Inc. and Blackstone announced a definitive agreement for Prologis to acquire nearly 14 million square feet of industrial properties from opportunistic real estate funds affiliated with Blackstone for USD 3.1 billion, funded by cash. The acquisition price represents an approximately 4% cap rate in the first year and a 5.75% cap rate when adjusting to today's market rents., May 2023: An experiential real estate investment trust, VICI Properties Inc., announced that it had signed agreements to buy the real estate assets of Century Casinos, Inc.'s Century Downs Racetrack and Casino in Calgary, Alberta, Century Casino St. Albert in Edmonton, Alberta, and Century Casino St. Albert in St. Albert, Alberta, for a total purchase price of USD 164.7 million. This move demonstrates both their continued drive to grow abroad and their faith in the Canadian gaming industry. They are also excited to assist Century's asset monetization strategy, which will open up new opportunities for their cooperation.. Key drivers for this market are: Evolution of retail sector driving the market, Office spaces in Toronto and Vancouver are increasing. Potential restraints include: High interest rates tend to slowdown business growth, Increasing cost of real estate affecting the growth of the market. Notable trends are: Evolution of retail sector driving the market.

Greater Los Angeles, New York, and Dallas/Ft. Worth were the metros that attracted the most multifamily investment in the four quarters ending in second quarter 2024. The three metros recorded over seven billion U.S. dollars in investment. Other popular markets included Greater Washington D.C., Atlanta, and Miami-South Florida.