During the fourth quarter the mean office cap rate increased very slightly, but when rounding to tenths of a percent remained unchanged at 6.9%. This is actually up 10 basis points from the level during the fourth quarter of 2014. Meanwhile, the 12-month rolling cap rate was also essentially unchanged versus last quarter at 6.8%. These signals are largely the same ones that we received last quarter. Over the last year cap rate compression for office has slowed. We all know that the in-quarter mean cap rate can be a bit volatile, but the 12-month rolling cap rate is clearly showing some signs of stalling. While this merely looks like a pause, it is important to note that office fundamentals continue to offer attractive upside. In many markets across the country the outlook is brighter over the next five years than was has transpired over the previous five years. But is this true for all markets? Is it impacting transactions and pricing at a more micro level? For now it is important to note that in the historical context, cap rates remain near historically-low levels.
When we compare the current 12-month rolling cap rate to the mean 12-month rolling cap rate, we find that it is under by about 40 basis points. This is roughly in line with the difference from last quarter and 10 basis points narrower than what we observed in the apartment market. We mentioned last quarter that the shifting pool of properties traded from quarter to quarter could cause cap rates to rise in short term. While that is what we observed (albeit slightly), the market nonetheless remains incredibly pricey.