Editorial|&utm_term=|Website-Editorial-NAT(Website)|"> Auction.com in its Q4 2014 CRE Market Monitor. Investors searching for yield may find it more easily abroad for a number of reasons.

According to Auction.com, expansionary monetary policies in Europe and Japan have weakened foreign currencies relative to the dollar, prompting speculation that more capital will flow outside of the US. The European Central Bank also recently announced its commitment to quantitative easing in Europe in an effort to stimulate the economy. “This should continue to put downward pressure on the euro and have the potential effect of spurring more capital investment into Europe and out of the US as investors look to generate greater return on investment,” says Peter Muoio, Ph.D, chief economist at Auction.com.

The Market Monitor also shows healthy increases in both deal volume and price growth even as risk premiums edge up. CRE deal volume is at a new post-recession peak as cap rates continue to compress, and this trend is likely to continue in the near term.

Some sectors are faring better than others, with apartment trends remaining strong, while the office and industrial markets continue to improve, demonstrating near-term growth potential. Meanwhile, retail-sector trends are inconsistent, with deal volume growing at a quick clip while price growth resets following a run-up in 2013.

According to Auction.com EVP Rick Sharga, “We're starting to see some significant variations in performance among the various sectors. For example, it looks like we're going to see another banner year in the multifamily segment, as homeownership rates decline and household formation increases. Office pricing continues to outpace its underlying fundamentals, while retail pricing appears to be cooling off, due to some of the issues that sector is facing.”

As GlobeSt.com reported in August 2014, Sharga told us that online shopping and smaller footprints are “going to challenge retail pricing for sure. And if we do wind up with a flood of available property on the market, it dampens the opportunity for pricing to come back in the sector. If I had one concern about the pricing sector, it would be that one. Of course, local trends vary from market to market, but looking broadly across the country, that's what we'll be looking at.”

According to the Market Monitor, the total combined volume in the office, retail, apartment, industrial and hotel sectors reached nearly $120 billion in the fourth quarter of 2014, a 5.5% increase from a year ago. All five sectors saw a year-over-year volume increase, reflecting stronger valuations and underlying fundamentals. Office and apartment transactions accounted for nearly 60% of the total. And while retail continues to face headwinds due to the rise of online shipping, deal volume increased to a 20% share of the total.

The report also shows that property pricing remains on a steady upward trend, up 13.9% from a year ago. Hotel, retail and industrial sector pricing continues to work back toward prerecession peaks, in contrast to the office and apartment sectors, which have already surpassed those levels.

Also, office, apartment and industrial-sector prices are up 16.6%, 14.4% and 16%, respectively, from a year ago. Meanwhile, the retail and hotel sectors continue to show some weakness. Retail year-over-year price growth is trending well below the other sectors at 6.3%, even as its deal volume improves, possibly reflecting a recalibration of retail values following the unexpected sharp jump in investor interest earlier and the recent fall-off and challenges facing the sector. And, while hotel-sector data lags one quarter behind and is only available through September, price per key declined on a year-over-year basis for the second consecutive quarter, down 3.4%.

Auction.com also reports that CRE risk premiums have inched up modestly from a year ago, with the apartment sector seeing the most significant increase. The gradual upturn reflects the recent run-up in pricing and valuations across all CRE sectors.

Not surprisingly, cap rates are now significantly below their 10-year average across all sectors, and apartment cap rates are just off their new 10-year low of 6% set in the previous quarter. The industrial sector posted the largest quarterly and year-over-year cap-rate declines, compressing 20 bps from the prior quarter and 50 bps from one year ago.

According to Muoio, this compression of cap rates for CRE is largely due to a four-quarter stretch of declines in the 10-year US Treasury rate, a major component of cap rates. “We expect the Federal Reserve to initiate rate hikes at some point in mid to late 2015—especially if wage growth comes to fruition—continuing its path of normalizing monetary policy. This may place upward pressure on cap rates as the risk-free rate begins to rise.”