KBRA releases research on property capitalization rates in U.S. commercial mortgage-backed securities (CMBS). As the Federal Reserve combats inflationary pressures with increasing interest rates, the commercial real estate market is focused on the potential impact to property income capitalization rates and valuations. While over long periods, capitalization rates are positively associated with interest rates, they are also meaningfully influenced by market and economic fundamentals.

Given the uncertainty ahead, KBRA analyzed capitalization rate trends in CMBS transactions from 1996 to 2022, a period of more than 25 years, to see if history can provide useful insights for the future. We also compared how capitalization rates trended over the last 50 years based on American Council of Life Insurers Commercial Mortgage Commitment capitalization rate data. Interestingly, there are several times over the study period where interest rates have increased during a span of two or more years, but capitalization rates stayed relatively flat or even declined. This provides some historical perspective that capitalization rates may rise only modestly in the months ahead.

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Related Publications

• CMBS Trend Watch: April 2022
• CMBS Loan Performance Trends: May 2022

• KBRA’s Global Rating Stability Study: 2011-2021
• ESG: European Energy-Efficiency Initiatives for Commercial Real Estate: An Introduction

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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