The bid-ask gap for commercial real estate remains notably wide

Sticky valuations and low transaction volumes globally are reflected in a disparity between appraisal cap rates and transaction cap rates for commercial real estate, according to the Hines 2024 Outlook: Disciplined Capital, Prospects Ahead.

The lack of concrete transactional data means some appraisers — particularly those in the United States — have been conservative in marking down assets. “This can create a problematic cycle where the disparity between book value and potential market value perpetuates, leading to a scenario where transaction volumes remain low, and markdowns remain restrained,” states the outlook.

Office assets in the NCREIF Property Index (NPI) during third quarter 2023, for example, had an average equal-weighted appraisal cap rate of 5.6 percent but an equal-weighted transaction cap rate of 8.0 percent, based on in-place income, for the 23 office properties sold out of the database. “In the industrial and apartment sectors, there