Current Cap Rate Environment by Property Type

Introduction

Commercial real estate spent the first half of 2026 doing something the bond market did not: standing still. CBRE's H1 2026 U.S. Cap Rate Survey, built from about 3,600 estimates across more than 50 markets, found the all-property average essentially flat in the mid-6% range, even as the 10-year Treasury swung from below 4% in late February to 4.67% in mid-May. The calm hides two problems. The first is dispersion: stabilized multifamily and industrial still trade near 5%, while prime office pushes toward 8% and distressed Class C office runs into the teens. The second is timing: the survey closed in late June, and since then the Fed has hiked and the 10-year has traded above 5%, leaving the cheapest assets priced on a spread that has all but disappeared. Reading the current environment means reading both gaps, between sectors and between cap rates and the rates that fund them.

The table below is the picture an analyst should be able to draw from memory walking into an interview. These are broad ranges for institutional-quality, stabilized assets in primary markets; secondary markets and lower classes price wider.

The ordering is not random. The sectors at the top share durable, demand-led fundamentals and deep debt markets; the sectors at the bottom carry either structural demand questions (office) or operating intensity (hotels, which re-price rooms every night and carry no long-term leases). The going-in cap rate is the market's real-time verdict on how much risk sits in a building's future cash flow. What changed in 2026 is the mood around those levels. In December, CBRE's respondents overwhelmingly expected flat or falling cap rates; by June, compression expectations had dropped from 42% to 20% while 17% expected increases, and that survey predates the rate shock that followed.

The stabilization was a financing story before it was a real estate story. Cap rates fell to historic lows in 2021 because money was nearly free, then repriced violently through 2022 and 2023 as the fastest Fed tightening in four decades pushed the cost of debt above the income yield on most property. The Fed's cuts from late 2024 through 2025 pulled SOFR lower, and once debt priced in a narrow band, buyers and sellers could agree on value again.

This year the long end broke that pattern. The 10-year dipped to 3.97% in late February, climbed to 4.67% by May, and kept going after the Fed raised the federal funds target range to 3.75-4.00% on September 16, 2026, its first hike since 2023, with a median projection of 4.1% by year-end. On Treasury's daily par yield curve, the 10-year peaked at 5.31% on October 5 and was still at 5.09% on October 16. Lender quotes followed. Large multifamily loans that priced in the mid-5s earlier in the year now quote in the 6s:

Cap rates have not yet followed. Appraisals and surveys move slowly, sellers who do not have to sell simply wait, and the H1 survey was collected before the worst of the move. That lag is the gap a banker has to underwrite across.

In CBRE's H2 2025 survey, respondents ranked multifamily first and industrial second for expected performance over the next decade, and pricing still reflects that conviction. Both combine secular demand with the deepest debt markets in commercial real estate: multifamily has the agency lenders, Fannie Mae and Freddie Mac, who keep credit flowing through every part of the cycle, and industrial rides the logistics demand that drove a decade of rent growth, even as that growth has moderated from its 2021-22 peak.

Quality matters as much as sector. Within multifamily, Class A product trades around 5% while Class B and older vintage stock prices closer to 7%, a 200-basis-point spread that captures execution risk, capital needs and tenant durability. A candidate who says "multifamily cap rates are 5%" without qualifying for class and market has revealed they are quoting a headline, not underwriting an asset. The sector's conviction is also fraying at the margin: CBRE's H1 2026 respondents named infill multifamily the most bearish subtype, citing softer rent growth and higher rates.

Negative Leverage

When a property's going-in cap rate sits below the cost of its debt, the acquisition produces negative leverage: borrowing lowers the cash-on-cash return rather than amplifying it. Buying a 5% multifamily asset with 6.5% debt only makes sense if the buyer expects NOI growth or lower rates to close the gap.

Negative leverage is the defining tension at the low end of the table, and it is back. Through 2025 it was easing as SOFR fell and mortgage spreads tightened. With agency debt now in the 6s, a buyer of 5% Class A apartments is again borrowing 120 to 200 basis points above the going-in yield, so the deal works only on rent growth, and CBRE's own midyear forecast puts five-year multifamily rent growth at just 2.8% a year. The mechanics of how rates feed into pricing are covered in what drives cap rate compression, and the leverage math in LTV, DSCR, and debt yield.

No sector tells the bifurcation story like office. Prime, well-leased trophy towers command cap rates approaching 8%, distressed Class C buildings carry estimates in the low teens, and some assets cannot find a clearing price at all. The sector does not have "a" cap rate; it has two distinct markets that happen to share a property type.

The encouraging H2 2025 signal did not last. That survey showed the spread between low and high office yield estimates stop widening for the first time since 2022; in H1 2026 the gap widened again even as it narrowed for every other property type, Class B and C estimates kept bouncing between surveys, and lower-tier office drew some of the survey's most bearish sentiment. Fundamentals are slowly improving: Cushman & Wakefield put Q3 2026 national vacancy at 19.8%, down 25 basis points year over year. Flight to quality remains the dominant theme, and capital keeps concentrating in the newest, most amenitized buildings.

Where the maturity wall and conversion economics stand is the subject of office distress and conversion, the sector most likely to generate questions about distressed and special-situations work.

Two sectors are worth isolating because they reframe how cap rates should be read. Data centers have matured from a niche to a core institutional asset class: stabilized hyperscale facilities transact at asset-level cap rates around 6% on long leases to investment-grade hyperscalers set against the AI-driven demand surge. Capital is pouring in: MSCI counted $33.8 billion of data center sales in July 2026 alone, swollen by the roughly $40 billion Aligned Data Centers acquisition, the dynamic explored in data center real estate and the AI demand surge.

Single-tenant net lease is the cleanest expression of credit-as-cap-rate. The Boulder Group's Q2 2026 report put the national blended net lease cap rate at 6.82%, up two basis points, with retail at 6.60%, industrial at 7.25% and office unchanged at 7.90%. Because the tenant carries the operating burden, the cap rate is almost entirely a function of lease term and tenant credit, the logic detailed in net lease and long-duration single-tenant assets.

Cap Rate Spread

The cap rate spread is the difference between a property's cap rate and the risk-free rate, usually the 10-year Treasury yield. It is the real estate risk premium, and it is the variable that actually moves: when Treasuries rise, spreads compress unless cap rates follow, the squeeze that defined 2023-24 and returned in the second half of 2026.

That spread is the unifying lens, and the long-end move has redrawn it. When the 10-year sat in the low 4s, a 5% multifamily cap rate carried a thin premium of roughly 75 to 100 basis points. With the 10-year around 5%, that premium is roughly zero: a Class A apartment buyer is accepting a Treasury-like yield for an asset with vacancy, capex and operating risk. Prime office near 8% still offers something like 250 to 300 basis points, and hotels at 8% to 9% more again. The low end of the market is priced for a rate-cut and growth scenario the rate path now contradicts; the high end is priced for fundamental risk that may or may not materialize. How each sector sits within its own cycle is the subject of cycle positioning across sectors.

If surveys and appraisals lag, the cleanest current signal is the listed market, where a REIT implied cap rate (property NOI divided by the enterprise value investors are paying) reprices every trading day. Nareit's Q2 2026 comparison found REIT implied cap rates above private appraisal cap rates in all four major property types, with office widest and apartments close behind:

The public-private gap says public investors are pricing higher rates faster than appraisers. Nareit's mid-year update put the appraisal cap rate for core open-end funds (the NCREIF ODCE index) at 4.44%, a dislocation now running a record 17 quarters; since late 2021, private marks have averaged only about 27 basis points over the 10-year against roughly 163 for REITs. At a 5% 10-year, those appraisal cap rates sit below the risk-free rate, which cannot hold. Nareit is an advocate for listed REITs, so treat the write-down figures as directional, but the ranking matches the spread math: apartments, with the thinnest spread over Treasuries, carry one of the largest gaps, while retail, which already re-rated, carries the smallest. A banker valuing a private portfolio should expect appraisal lag to unwind in that order.

The payoff of stable cap rates is that deals can happen again: once pricing stops falling, buyers and sellers can meet and capital re-enters. Transaction volume rose by double digits in 2025, the major price indices stopped falling, and CBRE's 2026 outlook projected investment activity up 16% to $562 billion, near the pre-pandemic average.

The first half delivered real numbers behind the forecast. Avison Young counted $233.6 billion of US investment sales in H1 2026, up 14.7% and the strongest first half since 2022, with multifamily about 31% of volume and industrial growing more than 30%. The momentum is narrower than it looks: MSCI's July data showed the highest July volume since 2005, but excluding data centers, traditional-sector sales of $40.7 billion were up just 1% year over year. Three forces drove the thaw:

For a banker, volume is the business. The second-half rate move now tests CBRE's $562 billion call. Its August midyear outlook held the 16% growth forecast on the assumption that the Fed would hold rates for the rest of 2026; the Fed hiked six weeks later. Reaching it requires the pace to hold through a half in which debt got about a point more expensive, and the trades most at risk are the low-spread multifamily and industrial deals that led the first half.

Bid-ask gap

The difference between the price sellers will accept and the price buyers will pay, which widens sharply when values are moving and nobody trusts the marks. A wide bid-ask gap freezes transaction volume; its narrowing as cap rates stabilized in 2025 is the clearest reason deal activity recovered, and a renewed rate shock is the fastest way to reopen it.

The most important shift in how cap rates should be read is that pricing has become asset-specific rather than sector-wide. Today the spread within a sector often exceeds the spread between sectors, and a building's location, quality, tenancy and capital needs drive its yield more than its property type; a gateway asset and an identical building in a thin secondary market can price hundreds of basis points apart.

The alternative sectors fill in the rest of the map. Self-storage sits near 5.8% on sticky tenants and minimal operating cost, despite month-to-month leases. Seniors housing has been compressing as the demographic wave meets limited new supply: the blended average was about 6.2% at the end of 2025, and CBRE's April 2026 seniors housing survey found it down another 19 basis points, with core Class A assisted living at 6.5%. Free-standing memory care, the most operationally intensive format, still prices near 9.6%. Single-family rental moved the other way, rising to roughly 7.3% by late 2025 as home-price growth slowed and the for-rent thesis normalized, while manufactured housing sits in the low-to-mid 5s on sticky tenancy and almost no landlord capital. The pattern repeats at every level: operating intensity and demand durability, not the property label, set the yield.

The most underappreciated move in the cap-rate map is retail. Through the rise of e-commerce, retail was the sector institutional capital wanted to sell, and its cap rates carried a fear premium well above multifamily and industrial. That has reversed. The best grocery-anchored and open-air neighborhood centers now trade in the low-to-mid 6% range, and in CBRE's H1 2026 survey neighborhood retail compressed more than any other property type.

The driver is supply, not a consumer boom. With almost no new retail built for years, demand for well-located, necessity-based space ran into a fixed stock, vacancy fell to historic lows, and occupancy and rent growth surprised to the upside. Grocery anchors proved durable through both e-commerce and the pandemic.

Grocery-anchored center

A neighborhood shopping center whose largest tenant is a supermarket, which draws recurring, non-discretionary foot traffic and tends to hold occupancy through downturns. That necessity-driven traffic is why grocery-anchored retail re-rated to the tight end of the sector, pricing closer to apartments than to the mall stock the market still discounts.

Retail's internal dispersion mirrors the bifurcation elsewhere: grocery-anchored and service-oriented centers anchor the tight end, while commodity power centers in oversupplied trade areas still price at a discount. The re-rating also shows in the listed market, where retail carries the smallest public-private gap of the four major types. A banker who still describes retail as structurally impaired is quoting a thesis the transaction market abandoned two cycles ago.

The forecast compression did show up in the first half, though not quite where expected. CBRE found neighborhood retail, hotels and industrial compressing most, and Class B, C and value-add assets compressing more than Class A, likely a sign of buyers reaching for yield while debt was cheapest in late winter. Industrial held the tightest range of any major type, roughly 4.5% to 6.5%, supported by a collapse in new supply (construction starts are down about 63% since 2022). The strain is the 220 million square feet by which 2025 deliveries outran net absorption, a gap NAIOP expects 2026 absorption of about 346 million square feet to start working off.

Office remained the exception, with Class A office and Class B averages still drifting up as weaker stock repriced. The bright spot was the medical office building sub-sector, where first-quarter investment surged as cap rates compressed and rents hit record highs, capital rotating toward defensive, demographically supported corners of the market.

Treat this as a first-half observation, not a trend. The compression was priced against a 10-year in the low-to-mid 4s, and the same respondents who recorded it had already turned more cautious about the next six months before the September hike.

The December consensus for 2026 was modest compression: CBRE expected cap rates for most property types to tighten by 5 to 15 basis points on improving liquidity and falling short rates. That call is gone. CBRE's August midyear outlook moved compression to 2027 and called for cap rates to hold steady through the rest of 2026 on higher-than-expected benchmark rates, and that was before the Fed hiked. The base case now is flat at best for the favored sectors, with upward pressure where spreads are thinnest (infill multifamily) and credit is weakest (lower-tier office), and with REIT implied cap rates showing the direction private marks will travel.

The Rate Path Is the Swing Variable

The long end decides, and it is far from where buyers need it. CBRE's H1 respondents put the 10-year yield that would trigger a notable uptick in sales at a median of 3.75%, more than a full point below where it trades, and the Fed's 4.1% year-end median offers no relief from the short end. Two paths frame the rest of the year:

For the banker, the market has moved from selective recovery to selective, rate-constrained recovery: the pipeline is open and capital is deploying, but the gains are concentrated and asset-specific. The right way to discuss the environment is not to predict a single direction for "cap rates" but to explain which assets compress, which widen, and why, anchored to the spread over Treasuries that ultimately governs them all.