Commercial Real Estate Cap Rates by Property Type 2026

A Cap Rate Is a Price, Not a Return

Take a building’s net operating income for the coming year, divide by what the building is worth, and you have its capitalisation rate. A warehouse earning $5m and valued at $100m carries a 5% cap.

Net operating income (NOI) is rent collected less the cost of running the building: property taxes, insurance, maintenance, on-site staff. It sits above interest, above tax, and above every dollar of capital spent on the building itself.

Because only one year of income goes into the sum, everything the market believes about the years after it has to be squeezed into the yield. Expected rent growth pulls the cap rate down. Risk pushes it up. The number is the market’s answer to a question it never asks out loud: what discount rate, less what growth rate.

So the obvious reading is the wrong one. A high cap rate is not a cheap building. Usually it is the market saying the income will fall, or that holding it flat will cost money NOI never shows. A 9% suburban office and a 5% warehouse can both be fairly priced. Read a cap rate as a verdict on the income stream, then decide whether you agree with it.

Four things move that verdict:

• The risk-free rate. Cap rates are quoted at a spread over the 10-year government bond yield. When the bond moves, the spread absorbs part of the move and passes on the rest.
• Expected rent growth. A property type where rents compound faster than inflation trades tighter for the same risk.
• Income durability. Long leases to investment-grade tenants, in a market where new supply is hard to build, mean the buyer needs less compensation.
• Location tier. Gateway markets (New York, Los Angeles, London) price tighter than secondary ones, because the supply constraint is real and the exit is liquid.

NOI Stops Before the Capital Bill

Two properties at the same cap rate are not the same investment, and the reason is what NOI leaves out.

NOI is struck before tenant improvements and leasing commissions: the money a landlord spends fitting out space and paying brokers every time a lease turns over. On a warehouse that bill is small, because the tenant needs a slab, a dock and lights. On an office it is not. Refitting a floor for an incoming tenant can cost more than a year of that tenant’s rent, and the landlord usually funds a rent-free period on top.

An office bought at a 7% cap can therefore hand over 4-5% in actual cash once the leasing bill is paid, while a warehouse at 5.5% hands over close to 5.5%. Part of the office-to-industrial gap pays for that spending rather than judging the tenants. It is also why you cannot line up cap rates from different property types and rank them. The same problem shows up at company level in the gap between FFO and AFFO, where recurring capital is deducted.

Listed-market implied caps vs transaction caps

Nareit’s Q1 2026 REIT Industry Tracker reports the following implied cap rates for listed equity REITs (NOI backed out of listed prices): industrial 5.2%, self-storage 5.9%, retail 6.2%, residential 6.4%, office 7.7%, all-equity average 5.9%.

Three different numbers get called a cap rate, and they answer different questions. A listed implied cap prices the sector aggregate today. A transaction cap is what one buyer paid at close on one asset. A NAV-input cap is your own fair-value assumption, usually built off published bands and broker surveys rather than the stock price.

Watch the gap between them, because it is the market disagreeing with the appraisers. Nareit’s mid-2026 update put listed REITs’ implied cap rates at about 163 bps (basis points, hundredths of a percent) over the 10-year Treasury while private appraisal cap rates sat at roughly 27 bps over it. The two have disagreed for seventeen straight quarters. Listed prices reprice daily; appraised values are marked when a valuer gets round to it, and they lag on the way down.

Read the levels below as spreads rather than as fixed points. Every band on this page moves with the risk-free rate, and a table of property-type cap rates written at a 1.5% 10-year would look nothing like one written at 4.5%.

Industrial: The Tightest Cap Rate Property Type

Since 2015, e-commerce and rerouted supply chains have changed what a warehouse is worth, and the cap rate has followed. Our industrial vs office REITs guide compares the two sectors’ fundamentals in detail.

Industrial Cap Rates: 2026 Market

Market Tier	Range	Notes
Gateway/Prime (LA, Chicago, NJ ports, Dallas, Atlanta)	4.5–5.5%	Constrained supply; strong e-commerce tenants (Amazon, UPS, DHL)
Secondary Urban (Phoenix, Denver, Columbus, Raleigh)	5.2–5.8%	Good tenant credit quality; supply more available
Tertiary/Regional (smaller metros)	5.8–6.8%	Lower barrier to development; more cyclical

Why Industrial is So Tight:

• e-commerce reached 16.4% of US retail sales in 2025 and still picks up a few tenths of a point a year (Census Bureau), so warehouse demand grows without needing a boom
• New industrial supply is constrained relative to demand (unlike 2007–2009)
• Tenant credit quality is strong. Concentration is not the risk it looks: Amazon is the largest customer of the biggest listed landlord and is still under 5% of its rent, with the top ten around 15%
• Leases are long-term (5–10 years) with limited rollover risk
• Re-letting a shed costs a fraction of re-letting a floor of offices, so more of the NOI survives to the investor

Historical Context: Industrial cap rates traded at 6.0–7.0% as recently as 2015, when supply and demand were balanced and e-commerce was small. The tightening to today’s 4.5–5.5% in prime markets reflects structural demand, not a cyclical high.

Risk: The tight cap rate is paying for growth. If e-commerce stops taking share, or if developers catch up with demand in the sunbelt, that growth assumption thins and cap rates normalise 50–100 bps higher. Watch net absorption against completions, not tenant names.

Office: The Widest Gap Between Prime and Secondary

Location and building age have split the office market in two. Class A gateway trades at 5.5–6.5%; Class B secondary at 7.5–9.0%, sometimes wider.

Office Cap Rates: 2026 Market

Market Tier	Range	Notes
Gateway Class A (NYC, SF, London, Boston financial)	5.5–6.5%	Strong tenant credit; hybrid work accepted; lower supply
Secondary/Suburban Class A	6.5–7.5%	Moderate demand; some WFH headwind
Class B Urban	7.5–9.0%	Ageing stock; higher vacancy; lower credit tenants
Class C/Regional Office	8.5–10%+	Distressed; uncertain re-tenanting; redevelopment candidates

Why Office Spreads Are So Wide:

• Working from home permanently cut office demand (estimated 10–15% structural vacancy increase)
• Older suburban office stock has limited retrofit value; new construction can’t compete
• Gateway office (NYC financial district, SF tech campus) remains attractive to global corporations despite WFH
• Refinancing wall: buildings bought at 4.0–4.5% caps in 2019–2021 now value at 7.0%+, so the loan against them can exceed the building
• The leasing bill bites hardest here. A landlord re-tenanting at a lower rent still pays full fit-out costs, so cash yield falls further than the headline cap suggests

Historical Context: In 2019 (peak cycle), gateway office traded at 4.0–4.5%; secondary office at 5.5–6.0%. The 150–200 bps widening reflects a lasting shift in demand rather than a cyclical dislocation.

Risk: Gateway could widen further to 6.5–7.5%, secondary to 9.0%+. Many office REITs are converting buildings to residential, so expect portfolio transitions to run for years.

Retail: Bifurcated by Format (Necessity vs. Discretionary)

Retail cap rates depend on property sub-type: necessity-based (grocery, pharmacy, dollar stores) trades tightly; discretionary (apparel, luxury) trades wide.

Retail Cap Rates: 2026 Market

Sub-Type	Cap Rate Range	Notes
Grocery/Pharmacy-Anchored Centres	4.8–5.8%	Essential; stable tenants; resilient NOI
Necessity-Based Retail (dollar stores, discount, auto parts)	5.0–6.0%	Strong demand; credit-worthy tenants; smaller format
Lifestyle/Mixed-Use (upscale outdoor malls)	5.5–6.8%	Experiential; lower online penetration; location critical
Power Centres (big-box discount)	5.2–6.5%	Still viable if anchored by Target, Costco, TJ Maxx
A-Quality Enclosed Malls	6.5–8.0%	Dominant regional centres; high sales per square foot; retailers compete to stay
B and C Malls	9.0–12%+	Anchor departures; co-tenancy clauses; conversion or redevelopment candidates

Notice how far apart the last two rows sit. “Retail” is not one property type, and the Nareit retail aggregate of 6.2% blends both ends of that spread, so it describes almost nothing you could buy.

Why Necessity-Based Retail Holds Value:

• Grocery-anchored centres have 95%+ occupancy; non-discretionary demand
• Tenants like TJ Maxx, Five Below, and dollar stores are growing square footage despite e-commerce headwinds
• Smaller footprints and discount formats are less vulnerable to online competition

Why Traditional Malls Collapsed:

• Apparel e-commerce penetration now >30% (vs. 10% in 2010)
• Anchor tenants (Macy’s, JCPenney, Sears) downsized or exited
• Large vacant anchors are hard to back-fill; conversion to residential is capital-intensive
• Class B and C malls face structural obsolescence

Historical Context: Malls traded as one asset class at 6.0–7.0% in 2015. They no longer do: the A-quality end has widened only modestly, while B and C centres often struggle to find a buyer at any price. Necessity-based retail held up well, tightening from 6.5–7.5% to 5.0–6.0%.

Risk: Grocery-anchored centres depend on tenant durability (Whole Foods, Kroger, Publix). A recession could pressure discretionary categories within these centres. Online delivery is also nipping at market share.

Residential: Location and Class Determine Cap Rate

Multifamily (apartments) is two markets sharing a label: high-rent city flats, and workforce housing in suburbs and smaller metros. They price differently because their rent growth does.

Residential Cap Rates: 2026 Market

Market Tier	Cap Rate Range	Notes
Gateway Urban Luxury (NYC, SF, Miami, Boston)	4.5–5.5%	Constrained supply; high rents; strong credit tenants
Secondary/Sunbelt Urban (Austin, Nashville, Phoenix)	5.0–6.0%	Growing metros; strong rent growth; newer supply
Workforce Housing (B/C-class suburban apartments)	5.5–6.8%	More supply; lower rent growth; recession-sensitive
Affordable/Subsidised (US government rent-support schemes)	5.0–6.0%	Government backing; stable but modest NOI

Why Residential Cap Rates Are Tight:

• Undersupply in gateway markets, where zoning and local opposition keep new building scarce, so existing stock holds a premium
• Demographic tailwinds (millennials ageing into family formation) support demand
• Institutional capital (pension funds, insurance companies) competes hard for the asset class

Recent Trends:

• Rents peaked in 2022 and have moderated in 2024–2026 as new supply came online in sunbelt metros
• Rent growth is now 2–3% annually vs. 6–8% during 2021–2022
• Cap rates have widened 50 bps as growth expectations moderate

Historical Context: Multifamily cap rates in 2019 (peak cycle) were 4.0–4.5%; now 4.5–6.8% depending on location. Not as severe a widening as office, but meaningful.

Risk: Continued development in sunbelt markets (Austin, Nashville) could push secondary market cap rates to 6.5–7.0% if occupancy falls. Gateway luxury is more defensive.

Data Centres: AI-Driven Demand Tightens Cap Rates

Cap rates here have compressed sharply since 2023, because AI and cloud demand outran the supply of powered, connected sites.

Data Centre Cap Rates: 2026 Market

Market Tier	Cap Rate Range	Notes
Tier-1 Hubs (Northern Virginia, Dallas, Phoenix, London)	4.0–5.0%	AI colocation demand; long-term leases (7–10 years); strong tenants (Google, Microsoft, Meta)
Regional (secondary metros with fibre infrastructure)	5.0–6.5%	Growing demand; good credit tenants; lease lengths 3–5 years

Why Data Centres Are Trading So Tight:

• Cloud and AI capital spending by the four hyperscalers (Alphabet, Amazon, Microsoft, Meta) came to roughly $410bn in 2025, with 2026 guidance pointing to about $725bn
• Supply is constrained by fibre connectivity, power grid capacity, and zoning
• Leases are long-term with limited rollover risk
• Tenants carry strong balance sheets; credit quality is high
• New development IRRs are constrained by power costs and permitting timelines

Historical Context: Data centre cap rates were 6.0–7.0% in 2018 before cloud adoption accelerated. Compression to 4.0–5.0% reflects structural growth and scarcity.

Risk: The risk is saturation once the hyperscalers finish their build-outs. Watch colocation lease terminations and utilisation. Rising power costs could widen cap rates too.

Self-Storage: Counter-Cyclical and Tight

Investors treat storage as defensive, and cap rates have tightened as they chased yield in a lower-growth market.

Self-Storage Cap Rates: 2026 Market

Market Tier	Cap Rate Range	Notes
Prime/Urban	4.8–5.8%	Limited new supply; strong unit economics; pricing power
Secondary	5.5–6.5%	More development but still constrained; good pricing

Why Self-Storage Trades Tight:

• Defensive business model; revenue grows with rent increases and occupancy (pricing power is high)
• Supply growth is modest relative to demand
• Tenant credit requirements are minimal; low rollover risk
• Demand holds up in a downturn, because people downsize, move and divorce in bad years as well as good ones. The counter-cyclical claim is usually overdone, but storage is genuinely less cyclical than most

Historical Context: Self-storage has held a 4.8–6.5% band for years, the narrowest of any property type here, and it moved less than office or retail through the 2022–23 rate rise.

Risk: New supply is starting to bite on occupancy and pricing in some secondary markets. Storage leases are month to month, so pricing power turns fast in both directions. Watch same-store NOI growth.

What the Gateway Discount Is Worth

Gateway assets trade at a lower cap rate than the same building in a smaller market: they cost more per dollar of income. Put a number on the gap, because it gets mistaken for a quality difference when it is mostly about supply and liquidity.

Reading it off the bands above:

Property Type	Gateway cap rate below secondary (bps)	Why
Industrial	50–130	Ports and infill land are finite; tertiary metros can build more sheds
Multifamily	50–100	Zoning constrains both, so the gap stays modest
Office	100–225	Widest gap here. Secondary office carries both weak demand and a thin buyer pool
Data Centre	~125	Power and fibre availability, not land, sets the tiering
Self-Storage	50–100	Steadiest spread of the six

Retail does not fit the pattern, because format matters more than geography. A grocery-anchored centre in a small metro prices tighter than a struggling mall in a big one.

The rule underneath the table: the spread widens where demand is uncertain and narrows where it is not.

What Happens When Rates Move

Start from the relationship. A cap rate is roughly the discount rate less expected growth, and the discount rate is the risk-free rate plus a property risk premium. Push the risk-free rate up and the cap rate should follow, but only after the other two terms have had their say.

In practice a 100 bps rise in the 10-year has tended to lift property cap rates by less, perhaps half, and over quarters rather than days. Three things absorb the difference. Rent growth can be revised up at the same time. The risk premium can compress, because buyers who need real assets keep buying. And private valuations are appraisal-based, so they take longer to admit the move.

The 2022 to 2023 hiking cycle showed how unevenly this lands. The 10-year went from roughly 1.5% at the end of 2021 to about 4% two years later. Nareit’s implied cap-rate series has industrial widening by something on the order of 100–150 bps across that stretch, and office by roughly twice as much. By Q1 2026 office was the only major property type with an implied cap above 7%.

Duration explains most of that gap. A full warehouse with contractual rent bumps delivers most of its value in the near years. A half-empty office delivers its value later, after re-tenanting that has not happened yet, so a higher discount rate takes more off it. Back-ended cash flows widen most when rates rise.

Using This Guide for REIT Valuation

To value a REIT by direct capitalisation, segment the portfolio by property type and geography, then apply a cap rate to each slice. Our how to calculate NAV guide and the REIT Sector Primer work through an example, including adjustments for mixed vintages and the development pipeline.

Cap rates are market prices and shift continuously, so treat every band on this page as a starting point rather than an input. Check it against recent transactions (CoStar, MSCI Real Capital Analytics) and the broker surveys. Ask whether this REIT’s portfolio is better or worse than the market average it is being compared with. Then run the answer at plus and minus 50 bps. A 50 bps error moves the property values by roughly 8%, and because the debt does not move with them the whole swing lands on the equity: nearer 13% of NAV at typical leverage. That is more than most of the mispricings anyone is hunting for.

The biggest gaps sit inside property types rather than between them: gateway against secondary office, an A mall against a B one. Averaging across a type hides the only distinction that pays.

And when a cap rate looks generous, assume the market has seen something before assuming it has missed something. Usually the extra yield is buying a lease expiry, a refit, or a tenant nobody wants to underwrite.