Cap rates suggest investors are seeking higher quality in office and retail, and a safe haven from rising rates in multifamily

Although the Fed raised its overnight borrowing rate by 25 basis points in December, March and then in June, apartment cap rates have barely registered a change, according to REIS. In fact, the mean apartment cap rate fell 30 basis points in the second quarter to 5.7 percent from 6.0 percent in the three prior quarters.

A reason for the cap rate to stay flat for three quarters and then fall 30 basis points in the wake of three federal funds rate bumps is that investors look to the apartment market as a safer investment when interest rates climb and this would lower cap rates. Moreover, the lower average cap rate is consistent with the higher effective rent growth we saw this quarter of 1.2 percent up from 0.3 percent and 0.4 percent in the previous two quarters.

On the contrary, the office sector cap rates have seen far more volatility than apartment sector cap rates. After climbing 40 basis points to 7.4 percent in the first quarter, the average cap rate fell to 7.2