A quickie search shows San Francisco and San Jose as having some of the lowest cap rates in the country. There are other markets that share this, of course... but the cap rate for Multi-family units there is about 4.5%. Seattle shares in this relatively low cap rate.
The "market" for investment in commercial properties competes - as does every other form of investment - with the expected returns from other forms of investment. In order to make an investment "attractive" - it needs to return some basis points above a mean. In a lot of investments that mean is the 10 year treasury.
Right now - a 10 year treasury is paying 1.84%.... so if you do a quick calculation... a 4.5% cap rate is 266 basis points above the 10 year. You can see how that will be squeezed if the 10 year jumped to a paltry 2.00% and even worse at 2.25% etc. Suddenly the investment return of 4.5% isn't looking so hot.
Long term - like any investment - there has to be some thought put in to where we are in any market cycle - what the future looks like - and the net end result of a particular investment. It's infinitely easier to take a loss on a stock if the market turns to crap... you own 100% of the investment - unlike a property with a mortgage.. which has sales commission costs etc. and could possibly be underwater! But like a dividend paying stock - commercial property provides income and the POTENTIAL for appreciation over time.
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