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If new info suggests that rents in a market are going to increase at a faster...

If new info suggests that rents in a market are going to increase at a faster rate than what had been projected, what will happen to cap rates that appraisers abstract from this market after this new info becomes known to market participants?

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Answer #1

When the rents in a market are going to increase at a faster rate than what has been projected, then it will have a positive effect on the price of real estate because owning a property and renting a property are both considered as alternate form of choices.

so, prices of real estate will gain because of increase in price of their substitutes and hence a lower capitalisation rate is to be adopted in order to inflate the price of real estates properties.

So, capitalisation rates would become lower in order to inflate the the prices of real estate properties.

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