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California Property Investors Face Higher Returns as Cap Rates Surge
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Date:
30 Sep 2025
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A significant repricing of California commercial real estate assets is creating unprecedented opportunities, but with important caveats, according to Daria Walker, Principal of Walker Realty Capital, who warns that timing and capital position will be crucial for success.
The Market Shift
“Properties are, honestly, a lot cheaper than they were,” Walker says, pointing to a dramatic shift in capitalization rates. “Where you were able to get a four or 5% cap rate, we were seeing 4% cap rates, 3% cap rates, if I’m honest, now, you’re seeing them at six. The distressed ones are coming in at eight or higher.”
This repricing comes after a period of extremely low transaction volume over the past two years, Walker notes, creating what she describes as a “California on sale” situation.
The Forces Behind the Shift
Walker identifies several factors driving this market correction:
- Overleveraged properties facing refinancing challenges
- Properties not meeting debt service requirements
- Forced sales from retiring investors
- Natural disaster impacts in certain regions
“If you bought at the top of the market, if you can help it, you’re probably going to try to stay in that property for another 10 years,” Walker explains. “But the truth is, if you bought at high leverage with these extremely low interest rates, thinking that these three and 4% cap rates were going to hold in California, you’re probably just going to take the loss.”
The Window of Opportunity
For well-positioned investors, Walker sees a clear opportunity – but emphasizes the importance of timing. “If you have been sitting on some capital for a long time and you’re thinking about getting into the market, you need to move now,” she advises. “Do not wait for rates to come down, or for prices to come down, because if there’s any movement, these things will be swept up.”
However, Walker cautions that this opportunity isn’t available to everyone. “If you need to raise capital in order to do your investments, you’re going to be in a lot of trouble,” she warns, “because equity is really tough to source right now, a lot of things aren’t penciling.”
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