Walter Page, Director of Office Property Research with CoStar makes forecasts for the office property market forecast for 2017 and beyond, including interest rates, cap rates, and demand in this video from The Commercial Real Estate Show.
He notes that cap rates have been flat for office properties in the prior year, holding at 5.7% for institutional office properties and 7% for the median of the market office properties, which he specifies as class B office buildings. He believes the end of cap rate decreases are due to perceived growth prospects diminishing and an increasing expectation of rising interest rates. He forecasts a 20-30 BP increase in cap rates next 2 to 3 years, which would translate into a drop in values but for projected NOI growth. He believes that NOI growth will more or less offset the drop from increasing cap rates, resulting in stable values for the next couple of years.