Why does the cap rate go up every year? Is it because of inflation?
Cap rates are a function of demand is market place and investors overall feelings of optimism. When they are feeling more optimistic about a particular asset class they will bud prices up for same amount of NOI thus driving cap rates lower. We have seen a compression in cap rates almost across the board over the past decade due to this phenomena.
@Jim Tassoni so cap rates usually go down year after year instead of going up?
@Jingwen Dunford Cap Rates are a function of market forces. When investors are feeling optimistic or bullish about market dynamics we usually see cap rate compression as they bid up prices. The opposite is true when they are feeling pessimistic or bearish. Cap rates do not go up or down year after year, they are a function of underlying market dynamics. Hope this helps.