In what could be the end ofits upward trend as the coronavirus outbreak rages on, cap rates inPhoenix compressed across nearly all asset classes in the secondhalf of 2019. According to a new report from CBRE,multifamily, industrial, retail and hotels all saw reduced caprates. While the fundamentals for each asset class is different,the Phoenix market has benefitted from population and jobgrowth.

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Apartment cap rates are the lowest in the market, in the low 5%range. In the second half of 2019, cap rates decreased by 9 basispoints to 5.11% for infill-stabilized assets and by 11 basis pointsto 5.37% for suburban assets. "Phoenix has consistently been thetop multifamily rent growth market nationally for the last twoyears," Matt Pesch, a broker at CBRE, tellsGlobeSt.com. "Investors are currently driving down currentyields with the expectation that this outperforming growth willcontinue into the future."

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The low cap rates helped to drive investment sales volumes. "Thecurrent cap rate environment has certainly helped drive salesvolume," says Pesch. "As pricing has continued to move upward,we've seen more clients monetize their position much sooner thanthey underwrote at acquisition."

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While the market will likely be disrupted by the coronavirusoutbreak—although it is too soon to know the extent—the firstquarter saw continued cap rate compression. "So far through thefirst quarter, we've seen cap rates decrease by 25-50 basis pointsfrom where they were late last year," says Pesch. "There is morecapital seeking multifamily assets than there are availableinvestment opportunities. Given the current interest rateenvironment and depth of capital in the market, we expect modestcap rate compression to continue."

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The industrial asset class is also leading the market in low caprates. Class-A industrial cap rates decreased by 50 basis points to5%, and the average rate for acquisitions of all tiers and classesof stabilized assets fell 17 basis points to 6.13%. "Caprate compression is driven by strong leasing activity, overalleconomic diversification and the market's proximity to coastalmarkets where pricing is even higher," DanCalihan, a broker at CBRE, tells GlobeSt.com. "Investmentactivity is up and sale volume is strong as metro Phoenix continuesto see an infusion of institutional capital."

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Again, the future of the market is unpredictable at the moment,but Calihan said that the market remained active in the first twomonths of the year. "We are very bullish on industrial assetpricing for 2020 and have seen robust activity in the first twomonths of the year," he says. "Sellers' expectations have beenexceeded and as assets are attracting numerous qualitybidders."

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.