Why cap rate is positively related to vacancy rate? Because When vacancy rate increases, demand for property price decrease and thus cap rate increases? If yes, then high vacancy should also decrease the noi…can anyone help?
Cap rate = r - g
The higher the cap rate, the riskier the investment/property (high r), and could also mean the asset is a low-growth one (low g).
Cap rate is usually used as an indicator of demand of a property in a specific location. Higher cap rate could mean lower demand.
The NOI is static based on the coming year estimation, whereas the Cap rate is more of a forward-looking indicator.
As cash flow riskiness increases with increase in vacancy rates and the cap rates factor in that risk. And hence, the higher cap rate.