Cap Rate Clarity: National Trends & NYC’s Multifamily Spotlight

[Alexander Szikla]

Commercial real estate markets are showing signs of stabilization as CBRE’s latest survey reveals most investors believe cap rates have peaked. Despite Treasury yield volatility throughout 2024, cap rates remained steady with industrial and multifamily sectors even experiencing slight declines.

After a 51% drop in transactions during 2023, CRE sales volume rebounded 9% last year — signaling improving investor confidence.

The New York City multifamily sector presents a particularly interesting story. CMBS issuance quadrupled to $6.7 billion in 2024 — reaching its highest level since 2019 and representing 27% of nationwide multifamily issuance.

However, this surge comes alongside rising distress levels, particularly in pre-1974 buildings where distress rates hit 25.1%, compared to just 2.9% for properties built after 2000. The Housing Stability and Tenant Protection Act of 2019 continues to challenge owners of rent-stabilized properties.

By year-end 2024, the distress rate for NYC multifamily conduit loans reached 8.5%, contributing to an overall conduit distress rate of 14.4% citywide. Multifamily properties now account for 43% of the city’s total distressed commercial loans.

Office properties face ongoing challenges across the country, with cap rates for premium Class A properties now exceeding 8%, while distressed Class C properties see rates climbing into the low teens. This reflects investors pricing in higher risk premiums for the sector.

Looking ahead, 2025 appears poised for increased transaction activity as the market adjusts to the current interest rate environment. Strategic investors focusing on quality assets with strong fundamentals will likely find attractive opportunities as the market continues to normalize.