by Calculated Risk on 3/21/2009 08:06:00 PM

Randyl Drummer at CoStar writes: Rising Cap Rates Add to Real Estate Investors' Worries. Here are some stats:

In fourth-quarter 2007, 180 closed transactions of Class A office sales of more than $5 million were recorded, trading at an average actual cap rate of 6.1% nationally. By the last three months of 2008, the average cap rate spiked to 7.6% on just 80 transactions, including a jump of more than 100 basis points between the third and fourth quarters. With sales results for the quarter still being collected, CoStar had recorded 42 closed transactions at an average actual cap rate of 7.9% as of March 18.

Investors closed 279 sales of Class A and B warehouse and distribution property in the fourth quarter of 2007 at an average cap rate of 7.1%. The number of transactions dropped sharply in fourth-quarter 2008, with the cap rate rising 100 bp. First-quarter 2009 is continuing to trend toward a sharp drop in transactions, with the cap rate edging up another 50 bp to a preliminary 8.6% as of March 18.

In the apartment sector, a look at sales totaling $5 million or more shows that 629 Class A properties exchanged hands in fourth-quarter 2007 at an average actual cap rate of 5.9%. For the same period a year later, 355 transactions sold and the average cap rate rose 90 basis point to 6.8%, thanks to a 50-bp jump between the third and fourth quarters. Though deal volume appears to be again dropping sharply in the first quarter, the cap rate for closed transactions was holding steady at 6.8% in the quarter to date -- the only major property category to hold the line on cap rate expansion.

So for Class A office space, average actual cap rates have risen from 6.1% in Q4 2007 to 7.9% currently.

For Class A and B warehouse and distribution properties, cap rates have risen from 7.1% to 8.6% over the same period.

And for Class A apartments, cap rates have risen from 5.9% to 6.8%.

This is just another way of saying prices have fallen sharply. Most small investors buy Class B or C apartments, and I'd be curious about those cap rates.