Does an increase in interest rates affect property value?
Investors fear that the normalizing of interest rates will result in increasing the cap rates and declining property values. Although the relationship exists, the problem is that it is more complex and typically other factors come into play.
Cap rates are influenced not only by interest rates but also a wider network of variables. Some of these variables include: unemployment rates (which in 2016 is predicted to be below 5%), the current cap rate spread (currently 30 bps higher than long-term historical average of 270 bps), and timing of the cap rate increase.
For more information on this topic, please read this article.