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The value of liquidity

2 July 2018

More liquid real estate markets attract higher prices, Real Capital Analytics research shows.

RCA says: “The relationship between a market’s cap rate and its liquidity score is significant: the higher a market’s liquidity score, the lower its observed cap rate.”

The chart plots 10-year average cap rates against 10-year average liquidity scores for key global markets. For every point increase in liquidity score a market’s cap rate is expected to compress by about 2.6 basis points.

RCA’s annual Capital Liquidity Scores research showed liquidity in the most traded markets worldwide at the end of 2017. The report shows liquidity falling or flat in the most traded markets, however most were more liquid than the long term average. Tokyo was an exception, in that its liquidity score for 2017 was below the long-term average, however it remains the most liquid market in the Asia Pacific region.

A number of Asia Pacific markets: Yokohama, Auckland, Kuala Lumpur, Guangzhou and Nanjing showed increasing liquidity last year.

Further reading:
REAL Capital Analytics