Which scenario would likely lead to an increase in a property's cap rate?

The scenario that would likely lead to an increase in a property's cap rate is associated with rising interest rates. When interest rates rise, borrowing costs for potential investors increase, which can lead to decreased demand for purchasing properties. As a result, property values may decline or stabilize, while net operating income may remain the same or grow more slowly in comparison. This can lead to an increase in the cap rate, as the cap rate is calculated by dividing the net operating income by the property's value. Since an increase in the cap rate indicates either reduced property values or continued income stability, rising interest rates can create the conditions necessary for this outcome.

In summary, rising interest rates typically lead to higher capitalization rates due to decreased property values and increased costs of financing, which ultimately impact the attractiveness of real estate investments.