Q1 numbers show markets have performed as expected, Integra Realty Resources chairman Ray Cirz tells Bisnow. (The bright spot behind him agrees.) But an IRR survey of investors, lenders, and mortgage bankers shows concern over rising interest rates as much as a 25 bps shift by the end of the year, impacting cap rates and putting downward pressure on valuations. Its a trend were keeping our eye on. Investor demand may cool, taking some steam out of the market. Itll partially depend on stock market performance and whether real estate will be a better deal than equities at that time.

[caption id="attachment_60609" align="alignnone" ] Sources: Integra Realty Resources[/caption]

In many cities, there's a disconnect between rental growth rate and expense growth rate (inflation and costs like insurance and taxes) expected over the next 12 months. When paired with vacancy rates, Q1 numbers show a weakened East Coast and Central regions, while the West Coast region performed strongly across all property types, particularly community shopping centers, where expected rent growth (2.88%) exceeded expenses (2.82%). (First the sunshine, now this. Western bragging rights areinterminable.)"The West is performing very well, yet there's not a lot of room for further improvement," Ray says, particularly when vacancy hits the 6% range. "They don't historically go below that."