Typical Cap Rates for Commercial Real Estate in 2026 — What to Expect
A typical cap rate for commercial real estate in 2026 depends entirely on what you're buying and where. "Typical" for a Class A industrial building near a major port is 5.8–6.2%. "Typical" for a distressed suburban office building is 9–12%+. The 7–10× range between best and worst assets in the same market reflects how much property type, location, and asset quality drive yield expectations. Here's what typical looks like across the major CRE categories in 2026 — with the full range, the variables that drive divergence, and how to use these benchmarks in underwriting.
What Is a Typical Cap Rate? — The Full Range for Each Property Type
Cap rate = Net Operating Income (NOI) ÷ Property Value. A $2M property generating $120,000 NOI has a 6.0% cap rate. Higher cap rates mean more income yield per dollar invested — and typically more risk, weaker demand, or a softer market. Lower cap rates mean strong demand, quality asset, constrained supply, or institutional competition.
**Typical Cap Rate Ranges by Property Type (2026)**
| Property Type | Typical Range | Low End (Why) | High End (Why) |
|---|---|---|---|
| **Industrial / Logistics** | 5.5–7.5% | Infill, gateway, institutional | Secondary, spec, legacy clearance |
| **Multifamily** | 5.0–7.5% | Gateway Class A, no supply | Sun Belt lease-up, rent control |
| **Retail (grocery-anchored)** | 6.0–7.0% | Whole Foods/Trader Joe's anchor | Discounter anchor, shorter lease |
| **Retail (unanchored)** | 7.5–10%+ | High-street, tourist corridor | Suburban, older vintage, high vacancy |
| **Office (Class A CBD)** | 5.5–8.0% | Trophy, fully leased | Partial vacancy, suburban, commodity |
| **Office (Class B/C)** | 8.0–15%+ | Recent renovation, credit tenant | Distressed, high vacancy, dated |
| **Self-Storage** | 5.5–7.5% | Infill Class A, strong NOI | Secondary, lease-up, new supply |
| **Net Lease (NNN, inv.-grade)** | 5.0–6.5% | McDonald's, Dollar General, 15+ yr | Non-investment-grade, <5 yr term |
| **Medical Office (MOB)** | 6.0–7.5% | Health system on-campus | Freestanding, non-credit tenant |
| **Hotel** | 7.0–10%+ | Full-service, gateway, branded | Select-service, suburban, distress |
Sources: CBRE Capital Markets Q4 2025, CoStar Q4 2025, Cushman & Wakefield Q4 2025, Stan Johnson Company NNN Report, CBRE 2026 US Real Estate Outlook.
What Makes a Cap Rate "Good"? — The Variables That Drive Range
A cap rate doesn't exist in isolation — it's shaped by a constellation of variables. Understanding which variables matter most for each asset class is the difference between correctly pricing a deal and using a benchmark that doesn't apply.
**The 6 Primary Cap Rate Drivers**
**1. Location** — The single most powerful cap rate driver. Infill, supply-constrained markets (Manhattan, LA, SF, Boston) compress cap rates 100–200 bps vs. equivalent assets in secondary markets. Rule of thumb: 75–100 bps per tier of market quality (gateway → secondary → tertiary).
**2. Asset Quality and Specification** — For industrial: clear height, dock configuration, power. For office: LEED certification, amenity package, tech infrastructure. For multifamily: unit mix, finishes, vintage. Each 20-year vintage step typically adds 25–75 bps.
**3. Lease Term and Tenant Credit** — A 15-year lease with an investment-grade tenant (McDonald's, Dollar General, Amazon) can compress a cap rate by 150–250 bps vs. the same asset with 3-year multi-tenant leases. WALT is the critical metric: longer WALT = lower buyer risk = tighter cap rate.
**4. Current Occupancy and NOI Stability** — Stabilized assets (95%+ occupied, NOI growing predictably) trade at the low end of cap rate ranges. Unstabilized or value-add assets trade at the high end or beyond range. The discount for vacancy risk: typically 75–150 bps per 10% vacancy above market norm.
**5. Market Direction** — Improving market (falling vacancy, rising rents) allows buyers to model NOI growth, which supports tighter going-in cap rates. Deteriorating market (rising vacancy, soft rents) demands higher going-in yield to offset downside risk.
**6. Buyer Competition** — Cap rates are market-clearing prices. When 15 institutional buyers compete for a well-located Class A industrial asset, prices bid up and cap rates compress. When a distressed office listing gets 2 qualified buyers after 200 days on market, cap rates reflect that lack of competition.
How to Use Cap Rate Benchmarks in Underwriting — Common Errors
Cap rate misuse is one of the most common CRE underwriting errors. Here are the specific mistakes that lead to overpaying or underbidding.
**Error 1: Using National Averages for Local Markets**
National industrial average (5.9%) is the wrong benchmark for evaluating an LA County infill deal (should be 5.8–6.3%) or an Indianapolis spec deal (should be 6.5–7.5%). Always use submarket-specific benchmarks, not national averages.
**Error 2: Applying Stabilized Cap Rates to Unstabilized Assets**
A grocery-anchored center at 95% occupancy with long-term leases has a "stabilized" cap rate of 6.2%. The same center at 78% occupancy with two anchor leases expiring in 18 months should trade at a going-in cap rate of 7.5–8.5% or on a business plan basis (lease-up underwriting). Using the stabilized benchmark on an unstabilized deal = overpaying.
**Error 3: Ignoring Exit Cap Rate Risk**
With the 10-year Treasury at 4.6% (Q1 2026), cap rate spreads are historically compressed. If rates normalize or increase, cap rates could expand 50–100 bps at your exit horizon. On a $10M industrial deal at 6.0% cap rate, a 75 bps exit expansion = $1.1M reduction in exit proceeds (assuming no NOI growth). Model exit cap rate expansion in every deal.
**Error 4: Using In-Place NOI Without Rent-Control or Lease-Up Adjustment**
For multifamily in rent-control markets (LA, NYC, SF): in-place NOI may be significantly below market due to long-tenured controlled tenants. Cap rate on in-place NOI is artificially low if you're buying on market rents. For net lease: in-place NOI at above-market lease rates can create optically low cap rates that reset at expiration. Always model NOI at expiration.
**Error 5: Comping Off Distressed Transactions**
Distressed office sales at 12–15% implied cap rates are not market comparables for underwriting a stabilized Class B office buy. Distressed transactions reflect impaired assets with limited buyer pools — they compress RFV downward without meaning that stabilized assets should yield that much.
**The Right Framework**:
1. Start with submarket-specific benchmarks (not national averages)
2. Adjust for asset quality (25–75 bps per quality tier)
3. Adjust for occupancy/stabilization (75–150 bps per 10% vacancy above market)
4. Stress-test exit cap rate expansion (+50–100 bps at 5–7 year hold)
5. Verify NOI quality — rent control, lease expiration, TI/LC obligations
Cap Rates vs. Interest Rates — The 2026 Spread Context
The relationship between cap rates and interest rates is the fundamental driver of CRE pricing cycles — and the current environment is critical to understand for 2026 underwriting.
**The Spread: Cap Rate Minus 10-Year Treasury**
| Period | 10-Yr Treasury | Industrial Cap Rate | Spread |
|---|---|---|---|
| **2019 (pre-COVID)** | 2.1% | 5.5% | +340 bps |
| **2021 (peak compression)** | 1.6% | 4.8% | +320 bps |
| **2022 (rate shock)** | 4.2% | 5.2% | +100 bps |
| **2023 (rate peak)** | 4.9% | 5.7% | +80 bps |
| **Q1 2026 (current)** | 4.6% | 5.9% | +130 bps |
| **Historical average (2000–2020)** | 3.5% avg | 6.8% avg | +330 bps |
**What This Means for 2026**
At +130 bps spread (industrial), current cap rates are still compressed vs. the 2000–2020 historical average of +330 bps. This means either:
(a) Cap rates will need to expand 150–200 bps to normalize (bearish scenario — significant value reduction)
(b) Treasury rates will decline as the Fed reduces rates (bullish scenario — cap rates follow down, values increase)
(c) Investors accept structurally lower risk premiums due to institutional demand and supply constraints (base case)
Most CRE market participants are modeling the base case with downside stress testing against scenario (a). Underwrite a 50–100 bps exit cap rate expansion. If rates decline to 3.5–4.0% and cap rates follow, the upside scenario delivers 200–400 bps of value appreciation on existing holdings.
**Positive vs. Negative Leverage**
At a 6.0% cap rate and a typical 2026 commercial mortgage rate of 6.8–7.5%, you are financing with negative leverage (debt costs more than the asset yields). This was fine when NOI growth expectations justified it in 2021 (buying at 4.5% cap with 3.0% mortgage). In 2026, negative leverage means equity returns are entirely dependent on NOI growth or exit cap rate compression. Structure deals accordingly: lower LTV, higher equity coverage, and realistic NOI growth underwriting.
Cap Rate Quick Reference by Asset Class — 2026
A condensed reference for typical cap rates across commercial real estate in 2026:
**Industrial**
- Gateway infill last-mile (LA, NJ, Chicago): 5.0–5.8%
- Major logistics hub (Dallas, Atlanta, Phoenix): 5.8–6.5%
- Secondary market (Indianapolis, Columbus, Memphis): 6.0–7.0%
- Tertiary / rural distribution: 6.5–8.0%
**Multifamily**
- Gateway Class A (NYC, LA, SF): 4.2–5.2%
- Secondary market Class A: 5.2–6.2%
- Sun Belt Class A (new supply pressure): 5.5–6.5%
- Class B/C national: 5.5–7.5%
**Office (Class A only)**
- Gateway trophy: 5.5–7.0%
- Secondary Class A: 7.0–8.5%
- Suburban Class A: 7.5–9.0%
- Class B/C nationally: 8.5–15%+
**Retail**
- Grocery-anchored: 6.0–7.0%
- Single-tenant NNN (inv.-grade, 10+ yr): 5.0–6.5%
- Unanchored strip: 7.5–10%+
- Power center: 8.0–11%+
**Specialty**
- Medical office (on-campus): 6.0–7.5%
- Self-storage Class A: 5.5–6.5%
- Data center (leased): 5.5–7.0%
- Net lease QSR (drive-thru): 4.5–6.5%
For city-specific cap rates, see:
→ [Average Cap Rates in Los Angeles 2026](/p/average-cap-rates-commercial-real-estate-los-angeles-2026)
→ [Average Cap Rates in Indianapolis 2026](/p/average-cap-rates-commercial-real-estate-indianapolis-2026)
→ [Current National Cap Rates 2026](/p/current-average-cap-rates-commercial-real-estate-2026)
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