Nick Axford, the chief economist at Avison Young, is a well-respected expert in the real estate industry whose predictions are closely watched by insiders. According to Axford, the outlook for interest rates and core real estate asset capitalization rates over the next 12 months is positive, with policy rates expected to stabilize in late 2023 or early 2024. This stabilization could lead to a drop in cap rates, which are currently expected to settle between 5.5% and 5.75%.
However, Axford cautions that unforeseen circumstances could still impact the market, and the economy is not particularly strong at the moment. Interest rate increases could lead to a contraction in both personal and business spending, so it’s important to remain mindful of these potential challenges.
Despite these concerns, Axford predicts that cap rates will ultimately settle at an equilibrium of 5.5% to 5.75% once interest rates stabilize. He notes that while these rates may be higher than they were six or nine months ago, they are consistent with the normalized rates that real estate professionals have been anticipating for over a decade.
For those unfamiliar with the term, cap rate refers to the rate of return on a real estate investment. A higher cap rate means a higher return on investment, which is why investors are always looking for ways to maximize their cap rates. However, cap rates can be influenced by a variety of factors, including interest rates, inflation, and overall market conditions.
In summary, Axford’s outlook for the next 12 months is positive, with the expectation that interest rates will stabilize, and cap rates will settle between 5.5% and 5.75%. While there may be some challenges along the way, these rates are consistent with normalized rates that the industry has been anticipating for over a decade.
