1997 Capitalization Rate Expectations

1997 Annual Cincinnati Metro Area Capitalization Rate Survey

In general, the markets which showed greatest increase in strength were the suburban office market and larger-scale industrial/warehouse market. All cap rates declined for newer high-quality properties in residential, office, industrial and single-tenant categories. This means these market sectors are expected to increase in value. Large rental increases are expected in the suburban office market and those tenants who re-negotiated longer term leases a few years back are feeling much wiser today. For the very first time since the survey's inception, suburban office market cap rates fell below those of the CBD, a trend expected to continue for some time. The class B and C office market in the CBD is expected to deteriorate, especially when new office space opens at Fountain Square West. Moderate increases in residential rents are expected, especially in Cincinnati's northern counties. Only the retail sector showed increased cap rates for newer properties, with much concern over the impact of over-building in the retail sector. Some professionals mentioned concern over the increase in the speculative large-scale industrial property, particularly in Northern Kentucky.

Some respondents commented specifically on their primary concerns for the local market:

"Suburban residential rentals are doing well with stable or increasing property values, especially in northern counties."

"The suburban office market is very strong."

"The B office market will continue to deteriorate in the CBD."

"Too much industrial construction, especially in Northern Kentucky."

On multi-family:"Many owners are waiting for capital gain tax relief."

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