A competitive investment environment and attractive performance by commercial real estate have created a tight capitalization rate market. In the second half of 2014, cap rates compressed for most property types, according to a new report by CBRE.

“There is a lot of capital in the market, both domestic and foreign, that is currently buying commercial real estate. We expect cap rates to decline in most property types and most asset qualities, simply due to the amount of investment activity taking place,” says Jeanette Rice, Americas head of investment research at CBRE. “So, investors that concentrate on core will have to reduce yield expectations.”

The big exception was CBD office; cap rates for downtown office space widened 13–30 basis points in the second half of the year, suggesting that CBD office pricing has stabilized. In addition, the spread between CBD office and suburban office narrowed; the gap is now 81 basis points for class A office space. Accordi