Current Cap Rate Environment by Property Type

Introduction

The headline of 2025 was not where cap rates went but that they stopped moving. After roughly two years in which higher financing costs forced repricing across every sector, CBRE's H2 2025 Cap Rate Survey, built from 3,600 estimates across more than 50 US markets, found yields holding steady for the first time since the Federal Reserve began hiking. Stability, though, is not uniformity. The gap between the cheapest and most expensive sectors is about as wide as it has been in a decade: stabilized multifamily and industrial trade in the low 5% range, while prime office cap rates push toward 8% and distressed Class C office estimates run into the low teens. Reading the current environment means reading that spread, not chasing a single market number.

The table below is the picture an analyst should be able to draw from memory walking into a 2026 interview. These are broad ranges for institutional-quality, stabilized assets in primary markets; secondary markets and lower asset classes price wider.

The pattern is not random. The sectors at the top of the table 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 sit in the 8-9% area and are not shown). The going-in cap rate is the market's real-time verdict on how much risk sits in a building's future cash flow.

The stabilization is a financing story before it is a real estate story. Cap rates fell to historic lows in 2021 because money was nearly free; they repriced violently through 2022 and 2023 because the Federal Reserve raised rates faster than at any time in four decades, pushing the cost of debt above the income yield on most property and forcing values down until the math worked again. What changed in 2025 is that the rate picture settled. The Fed began cutting in late 2024, one-month SOFR drifted into the mid-4% range, and floating-rate borrowers got real relief for the first time in two years.

That fed straight through to mortgage pricing. By mid-2026, commercial mortgage rates had settled into a workable band: roughly 5.5% for large multifamily loans, near 5.9% for smaller apartment loans, and around 6.5% for CMBS. Lenders that had retreated began competing again, offering higher loan-to-value and re-entering sectors they had avoided, which loosened the financing that pricing depends on.

The settling of debt costs is what let cap rates stop moving. When borrowing costs are lurching, no buyer can underwrite a stable going-in yield, so transactions stall and the few that print swing the comps; once debt prices in a narrow band, buyers and sellers can agree on value again. It also eased the negative-leverage tension that defined 2023 and 2024, when buyers of 5% multifamily were paying 6%-plus for debt: as SOFR fell and mortgage spreads tightened, the gap between cap rates and debt cost narrowed, and the bet on lower rates that low-cap buyers had been making partly came good.

In CBRE's survey, respondents ranked multifamily first and industrial second for expected performance over the next decade, and pricing reflects that conviction. Both sectors combine secular demand stories with the deepest, most liquid debt markets in commercial real estate. Multifamily benefits from the agency lenders, Fannie Mae and Freddie Mac, who keep credit flowing through every part of the cycle, which compresses the yield buyers will accept. Industrial rides the same e-commerce and logistics demand that drove a decade of rent growth, even as that growth has now 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. That intra-sector gap is itself a talking point: 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.

Negative Leverage

When a property's going-in cap rate sits below the cost of its debt, the acquisition produces negative leverage: borrowing actually lowers the cash-on-cash return rather than amplifying it. Buying a 5% multifamily asset with 6% debt only makes sense if the buyer expects NOI growth or rate cuts to close the gap.

Negative leverage is the defining tension at the low end of the table. With borrowing costs across much of 2025 running above prime multifamily and industrial cap rates, buyers of those assets were explicitly betting on income growth and a lower rate environment ahead. That bet is why the sectors stayed expensive even as financing got harder, and it is the kind of nuance that separates a real answer from a memorized number. The same hierarchy holds cross-border: prime logistics and residential yields in core European markets such as London and the major German cities compressed to comparable low-5% levels, a reminder that the sector ranking is structural rather than a quirk of US monetary policy. The mechanics of how rates feed into pricing are covered in what drives cap rate compression, and the leverage math itself in LTV, DSCR, and debt yield.

No sector tells the bifurcation story like office. Prime, well-leased trophy towers in supply-constrained submarkets command cap rates approaching 8%, while distressed Class C buildings carry estimates in the low teens, and some assets simply cannot find a clearing price at all. That dispersion is the single most important fact about office today: the sector does not have "a" cap rate, it has two distinct markets that happen to share a property type.

The one genuinely encouraging data point from H2 2025 is structural. The average spread between the low and high office yield estimates in CBRE's survey stopped widening for the first time since 2022. That does not mean recovery, it means the period of pure price discovery is ending and a floor is forming under the better assets. Flight to quality remains the dominant theme, with capital concentrating in the newest, most amenitized buildings.

Where the maturity wall and conversion economics stand is the subject of office distress and conversion, and it is 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 now transact at asset-level cap rates around 6%, comparable to premium industrial, and roughly 53% of investors surveyed expected no change in the year ahead. The pricing reflects long leases to investment-grade hyperscalers set against the AI-driven demand surge, 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 national blended net lease cap rate sat near 6.8% in late 2025, with retail around 6.6%, industrial around 7.2%, and office near 7.9%. 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. Retail sits between these poles: after a decade of being written off, grocery-anchored centers and essential, service-oriented retail have quietly recovered, with the best centers trading in the low-to-mid 6% range as occupancy and rent growth surprised to the upside.

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, which is precisely the squeeze that defined 2023-24.

That spread is the unifying lens. With the 10-year Treasury sitting in the low-to-mid 4% range, a 5% multifamily cap rate represents a historically thin premium of roughly 75 to 100 basis points, while a prime office cap rate near 8% offers something closer to 350 basis points. Hotels, the operating-intensive outlier omitted from the table above, sit higher still in the 8% to 9% range, compensating buyers for the daily repricing risk of a business with no long-term leases at all. The wider the spread, the more risk the market perceives in the cash flow, which is why reading the gap matters more than reading any single sector's level. The right way to discuss the current environment in an interview is not to recite a table of numbers but to explain what those spreads imply: that the low end of the market is priced for a rate-cut and growth scenario, while the high end is priced for fundamental risk that may or may not materialize. How each of these sectors sits within its own cycle, rather than just its current yield, is the subject of cycle positioning across sectors.

The payoff of stable cap rates is that deals can happen again. Transaction volume cannot recover while pricing is in free fall, because buyers underwrite to a lower number than sellers will accept and the gap between them is unbridgeable; once cap rates settle, that gap closes and capital re-enters. That is what 2025 delivered. Total commercial real estate transaction volume rose roughly 19% in 2025, and the major price indices stopped falling. Forecasters expect the recovery to extend, with CBRE projecting investment activity up about 16% in 2026 to roughly $562 billion, near the pre-pandemic average, and Colliers calling for a 15% to 20% increase as institutional and cross-border capital comes back.

Three forces are driving the thaw. The first is price discovery: two years of repricing finally produced enough closed comparables that buyers and sellers can agree on value, so cap rates have become more transparent and reflective of true market-clearing levels. The second is the maturity wall, which is forcing transactions whether owners want them or not, as loans come due and borrowers must sell, refinance, or recapitalize rather than wait for a better market. The third is the enormous pile of dry powder raised during the boom and held back through the repricing, capital that now has clearer pricing to deploy against.

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; the narrowing of that gap as cap rates stabilized in 2025 is the single clearest reason deal activity began to recover.

For a banker, the volume recovery is the business. A stalled transaction market means thin deal flow and thin fees; a thawing one means sale mandates, financings, and recapitalizations all pick up at once. The recovery is uneven, led by the sectors where pricing is clearest, multifamily, industrial, and increasingly retail, and lagging in office, where it is growing fast but from a very low base. The direction, though, is unambiguous: the freeze that defined 2023 and 2024 has broken, and the pipeline that stable cap rates unlocked is why the sell side is busy again.

The most important shift in how cap rates should be read is that pricing has become asset-specific rather than sector-wide. In the easy-money era, a sector traded in a tight band and the headline number told you most of what you needed; today the spread within a sector often exceeds the spread between sectors, and a single building's location, quality, tenancy, and capital needs drive its yield far more than its property type. Quoting a sector cap rate without qualifying for those variables is the surest sign of a candidate reciting rather than underwriting.

The within-sector spreads are wide. In multifamily, Class A trades near 5% while older Class B and C stock prices closer to 7%, a 200-basis-point gap for the same product type. In office, the dispersion is enormous, from prime trophy near 8% to distressed Class C in the low teens. Geography compounds it: a gateway-market asset and an identical building in a thin secondary market can price hundreds of basis points apart.

Two sectors round out the map at the higher-yield end. Hotels, the most operating-intensive property type, sit around 8%, because a business that re-prices its rooms every night and carries no long-term leases offers none of the contractual certainty that compresses an apartment or net-lease yield, though the best assets could tighten toward the high-7s if rates ease. Self-storage, by contrast, has stabilized near 5.8%, its sticky tenants and minimal operating cost earning a yield closer to the low end despite month-to-month leases.

The alternative residential sectors fill in the rest of the by-type map. Seniors housing has been compressing as the demographic wave meets limited new supply, with the blended average around 6.2% at the end of 2025; core Class A independent living trades near 6.1%, while free-standing memory care, the most operationally intensive format, still prices near 9.6%, a spread that captures operating risk almost as starkly as office captures demand risk. Single-family rental moved the other way, its cap rates rising to roughly 7.3% by late 2025 as home-price growth slowed and the for-rent thesis normalized. Manufactured housing sits at the tight end in the low-to-mid 5% range, prized for sticky tenancy and almost no landlord capital, the same low-operating-cost logic that keeps self-storage rich. The pattern repeats at every level of the map: operating intensity and demand durability, not the property label, set the yield.

The most underappreciated move in the current cap-rate map is retail. For a decade after the financial crisis and through the rise of e-commerce, retail was the sector institutional capital wanted to sell, and its cap rates carried a fear premium that pushed them well above multifamily and industrial. That has quietly reversed. With almost no new retail built for years, vacancy fell to historic lows, and the surviving centers, especially grocery-anchored and open-air neighborhood retail, posted occupancy and rent growth that surprised the market to the upside. The best of those centers now trade in the low-to-mid 6% range, and surveyed investors increasingly rank retail among the more attractive risk-adjusted plays rather than a sector in decline.

The driver is supply, not a consumer boom. Because developers stopped building retail, demand for space in well-located, necessity-based centers ran into a fixed stock, the same supply-starved dynamic now playing out in office. Grocery anchors proved their durability through both e-commerce and the pandemic, drawing steady foot traffic that supports the smaller-shop tenants around them, and the resulting income has behaved far more like the contractual cash flow of an apartment than the cyclical risk the market once priced.

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 own internal dispersion is wide, and it mirrors the bifurcation seen everywhere else. Grocery-anchored and essential, service-oriented strip centers anchor the tight end; well-run regional malls and luxury high-street assets command premium pricing of their own; while commodity power centers and weaker malls in oversupplied trade areas still price at a discount and carry real re-tenanting risk. Single-tenant net-lease retail, where the tenant carries the operating burden, prices almost purely on credit and lease term, with the national blended figure near 6.6%. The common thread is that the sector the market left for dead has re-rated toward the middle of the cap-rate stack, and a banker who still describes retail as structurally impaired is quoting a thesis the transaction market abandoned two cycles ago.

By early 2026 the modest compression the surveys had forecast was starting to show in the data, and it was concentrated exactly where expected: in the highest-quality assets in the favored sectors. Industrial held the tightest range of any major type, roughly 4.5% to 6.5%, supported by a collapse in new supply (construction starts have fallen about 63% since 2022). The strain is the 220 million square feet by which 2025 deliveries outran net absorption, an oversupply gap that should work off as the supply collapse feeds through and 2026 net absorption is forecast back toward 346 million square feet (NAIOP), with vacancy peaking and reversing. Data center leasing was on track for an all-time high, with pricing firm and supply increasingly gated by the multi-year power-delivery timelines that now define the sector.

Office remained the exception that proves the rule. Even as prime trophy assets found a floor, the average Class A office cap rate drifted up toward 8.4%, and Class B closer to 8.68%, a reminder that the bifurcation has not closed so much as hardened: the best buildings are stabilizing while the weaker stock keeps repricing. One bright spot inside the broader healthcare theme was the medical office building sub-sector, where first-quarter 2026 investment surged roughly 78% as cap rates compressed to about 6.9% and rents hit record highs, a clean illustration of capital rotating toward the defensive, demographically supported corners of the market.

The early-2026 reads by sector sharpen the dispersion theme:

The transaction data confirmed the thaw was accelerating rather than stalling. Sales volume had been running more than 40% above the prior year in the back half of 2025, banks were easing back into commercial real estate lending, and forecasters held to calls for a 15% to 20% rise in 2026 activity. The signal across all of it is consistent with the dispersion theme: liquidity is returning first and fastest to the assets the market already trusts, and the cap-rate compression that liquidity brings is following the same selective path.

The consensus for 2026 is modest compression, not another round of repricing. CBRE and others expect cap rates for most property types to tighten by roughly 5 to 15 basis points, a gentle move that reflects improving liquidity and falling short-term rates rather than a return to the froth of 2021. The compression will not be uniform: it will concentrate in the sectors and assets the market already favors, prime multifamily, industrial, data centers, and the best retail, while distressed office and weaker secondary assets stay wide or drift wider as their problems resolve slowly.

The Rate Path Is the Swing Variable

The swing variable remains the rate path, and it cuts both ways. Continued Fed easing that pulls short rates lower supports floating-rate borrowers and compresses yields at the margin, but the long end is the real driver of cap rates, and a 10-year Treasury that backs up undoes much of that benefit. The base case of a gentle decline in short rates against a contained long end is what underpins the modest-compression forecast, and it is fragile in exactly that respect.

For the banker, the practical read is that 2026 is a year of selective recovery rather than a broad rally. The deal pipeline is reopening, pricing is clearer, and capital is re-entering, but the gains are concentrated and asset-specific, and the wide dispersion across and within sectors is the defining feature to underwrite. The right way to discuss the environment is not to predict a single direction for "cap rates" but to explain which assets compress, which stay wide, and why, anchored to the spread over Treasuries that ultimately governs them all.