Commercial Real Estate Guide
What Is a Good Cap Rate?
A deep dive into cap rate expectations across different property types and markets.
What Is a Good Cap Rate? 2026 Benchmarks by Property Type
Every investor asks the same question when they pull up a property listing and see a cap rate: is this number actually good?
The honest answer is that "good" depends entirely on what you are buying, where it is, and what you are trying to accomplish. A 5% cap rate is excellent for one deal and a red flag for another.
In this guide you will get the complete 2026 cap rate benchmarks by property type and market tier, learn what drives cap rates up and down, understand going-in versus exit cap rates, and know exactly when a high cap rate is a signal to run — not celebrate.
Why There Is No Single "Good" Cap Rate
Cap rate is a ratio of income to price. It moves in two directions at once — a cap rate can be high because income is strong, or because price is low (which often means risk is high).
A 9% cap rate on a Class C office building in a declining market is not the same as a 9% cap rate on a well-leased industrial property in a growing sunbelt city. Same number. Completely different investment.
The right cap rate for any deal depends on three things:
1. Property type — multifamily, industrial, retail, office, and self-storage all have different risk profiles and trade at different cap rates
2. Market tier — gateway cities like New York and Los Angeles command much lower cap rates than secondary and tertiary markets
3. Asset quality — Class A stabilized properties trade at lower cap rates than Class B/C or value-add deals
With that context, here are the benchmarks.
Cap Rate Benchmarks by Property Type — 2026
Based on CBRE's H2 2025 Cap Rate Survey and current market transactions:
Multifamily (Apartment Buildings)
| Market Tier | Class A | Class B | Class C |
|---|---|---|---|
| Primary (NYC, LA, SF, Chicago) | 4.0% – 5.0% | 4.5% – 5.5% | 5.5% – 6.5% |
| Secondary (Austin, Denver, Nashville) | 4.5% – 5.5% | 5.0% – 6.5% | 6.0% – 7.5% |
| Tertiary (smaller metros) | 5.5% – 7.0% | 6.5% – 8.0% | 7.5% – 9.0% |
Multifamily has compressed significantly over the past decade. Institutional capital flows and strong rental demand in sunbelt markets have pushed cap rates to historically low levels in many metros.
What is a good cap rate for multifamily? For a stabilized Class B multifamily property in a secondary market, 5.0–6.5% is considered a good cap rate in 2026. Anything above 7% in a decent market warrants investigation — either the income is inflated, expenses are understated, or there is a reason the seller is pricing aggressively.
Industrial and Warehouse
| Market Tier | Class A | Class B |
|---|---|---|
| Primary (Inland Empire, New Jersey, Chicago) | 4.5% – 5.5% | 5.5% – 6.5% |
| Secondary | 5.5% – 6.5% | 6.5% – 7.5% |
| Tertiary | 6.5% – 8.0% | 7.5% – 9.0% |
Industrial is the strongest performing major asset class of the past decade. E-commerce demand has driven cap rate compression in most markets, particularly for last-mile distribution facilities near population centers.
What is a good cap rate for industrial? 5.0–6.5% for Class A in primary and secondary markets. Single-tenant net lease industrial with long-term leases often trades at 5.0–5.75%.
Retail
Retail cap rates vary more widely than any other asset class — driven heavily by tenant quality and lease structure.
| Retail Type | Cap Rate Range |
|---|---|
| Single-tenant net lease (investment grade tenant) | 4.5% – 5.75% |
| Single-tenant net lease (non-investment grade) | 5.75% – 7.5% |
| Anchored strip center (national anchor) | 6.0% – 7.5% |
| Unanchored strip center | 6.5% – 8.5% |
| Power center / big box | 6.5% – 8.0% |
| Enclosed regional mall | 7.5% – 12%+ |
What is a good cap rate for retail? For a well-located strip center with national tenants and below-market rents, 6.0–7.0% is solid. For NNN properties with investment grade tenants on long leases, 4.5–5.5% is the market. See our full guide on triple net leases for NNN-specific context.
Office
Office is the most challenged commercial asset class in 2026 following the remote work shift. Cap rates have expanded significantly for all but the best Class A urban properties.
| Office Type | Cap Rate Range |
|---|---|
| Class A urban (top-tier markets) | 5.5% – 7.5% |
| Class A suburban | 6.5% – 8.5% |
| Class B urban | 8.0% – 10.5% |
| Class B suburban | 9.0% – 12%+ |
| Medical office | 5.5% – 7.0% |
What is a good cap rate for office? Class A urban office in a strong market at 6.0–7.0% can make sense for long-term investors. Class B office above 8.5% may look attractive on paper but vacancy risk is significant. Medical office remains the strongest office sub-type with cap rates closer to multifamily levels.
Self-Storage
| Market | Cap Rate Range |
|---|---|
| Primary markets | 4.5% – 5.5% |
| Secondary markets | 5.5% – 6.5% |
| Tertiary markets | 6.0% – 7.5% |
Self-storage has been a consistent outperformer. Low capital expenditure requirements and recession-resistant demand have attracted significant institutional capital, compressing cap rates in many markets.
Net Lease (NNN) Properties
| Tenant Credit | Remaining Lease Term | Cap Rate Range |
|---|---|---|
| Investment grade, 15+ years | 4.25% – 5.25% | |
| Investment grade, 10–15 years | 4.75% – 5.75% | |
| Investment grade, 5–10 years | 5.25% – 6.5% | |
| Non-investment grade, 10+ years | 5.5% – 7.0% | |
| Non-investment grade, under 10 years | 6.5% – 9.0%+ |
Cap Rate Benchmarks by Market Tier
Market tier has an enormous impact on cap rates — sometimes more than property type.
Primary markets (New York, Los Angeles, San Francisco, Chicago, Boston, Washington DC)
- Lowest cap rates in the country
- Deepest liquidity — easy to buy and sell
- Strong long-term appreciation history
- Cap rates often 100–200 basis points below secondary markets
Secondary markets (Austin, Denver, Nashville, Charlotte, Phoenix, Atlanta, Seattle)
- Mid-range cap rates
- Strong population and job growth in most sunbelt cities
- Cap rates have compressed significantly as institutional capital has moved in
- Often the best risk-adjusted return in 2026
Tertiary markets (smaller metros and rural areas)
- Highest cap rates — often 150–300 basis points above primary markets
- Higher yield but lower liquidity
- Tenant and economic risk is more concentrated
- Retenanting risk is higher if a major tenant leaves
What Drives Cap Rates Up and Down
Understanding what moves cap rates helps you read markets — and spot mispricings.
Factors That Compress Cap Rates (Drive Prices Up)
- Falling interest rates — investors accept lower yields when borrowing is cheap
- Strong investor demand flooding into an asset class or market
- Rent growth expectations — high anticipated NOI growth justifies a lower current yield
- Low vacancy and strong absorption in a market
- New institutional capital discovering an asset class (self-storage in the 2010s, industrial recently)
Factors That Expand Cap Rates (Drive Prices Down)
- Rising interest rates — investors demand higher yields to justify the risk premium over bonds
- Oversupply — too many competing properties driving up vacancy
- Economic weakness reducing tenant demand
- Structural changes hurting an asset class (remote work for office, e-commerce for retail)
- Tightening credit — fewer buyers qualify for loans, reducing demand
The cap rate and interest rate relationship: Cap rates broadly track the 10-year US Treasury yield — with a risk premium on top. When the 10-year Treasury yields 4.5%, investors typically require at least 150–300 basis points of additional return for commercial real estate risk. This is why the rate environment of 2022–2024 pushed cap rates up across all asset classes.
Going-In Cap Rate vs Exit Cap Rate
When underwriting a deal, you need two cap rates — not one.
Going-In Cap Rate
The going-in cap rate is the cap rate at the time of purchase, based on current NOI.
This is the number in every listing. It tells you the property's yield today.
Exit Cap Rate (Terminal Cap Rate)
The exit cap rate — also called the terminal cap rate — is the cap rate you assume when you sell the property at the end of your holding period. You use it to estimate your future sale price in a proforma.
How to set your exit cap rate: Conservative underwriters set the exit cap rate 25–50 basis points higher than the going-in cap rate. This accounts for property aging, market uncertainty, and the risk that cap rates expand during the holding period.
Why it matters: Choosing an aggressively low exit cap rate inflates your projected sale price and makes the deal look better than it is. If you assume you will sell at the same cap rate you bought at, you are assuming cap rates do not move — which is optimistic over a 5–7 year hold.
Example:
- Purchase price: $5,000,000 at 6.0% cap rate (NOI: $300,000)
- Hold for 5 years, grow NOI to $350,000
- Exit at 6.5% cap rate (conservative — 50bp higher than entry)
- Projected sale price: $350,000 / 0.065 = $5,384,615
If you had assumed the same 6.0% exit cap rate:
- Projected sale price: $350,000 / 0.060 = $5,833,333
The difference in projected sale price from that 50bp cap rate assumption: $448,718. Exit cap rate selection has a massive impact on deal returns.
Cap Rate Compression and Expansion
Cap rate compression means cap rates are falling — property prices are rising faster than income. A portfolio bought at 7% cap rates that now trades at 5% cap rates has seen significant value appreciation even with flat NOI.
Cap rate expansion means cap rates are rising — property prices are falling relative to income. The 2022–2024 period saw meaningful cap rate expansion across most asset classes as interest rates rose.
Why this matters for investors: If you buy at a 5% cap rate expecting compression to 4%, you are making an explicit bet on the market. If cap rates expand to 6% instead, the value of your property drops significantly even if NOI is stable.
Conservative underwriting does not assume cap rate compression. Model your returns assuming cap rates stay flat or expand slightly. Any compression you get is upside.
When a High Cap Rate Is a Warning Sign
A high cap rate looks attractive on the surface. But sometimes it reflects genuine risk that the price is accounting for.
Watch out for high cap rates caused by:
Inflated or pro forma NOI — the broker is using projected income at full occupancy rather than actual trailing income. Always underwrite on T-12 actuals.
Below-market rents with no escalation — long-term tenants at deeply below-market rents can look like high NOI if expenses are low, but the rent reset risk at lease renewal is significant.
Deferred maintenance — a property with $200,000 in needed capital repairs may show strong NOI today, but the capex will hit immediately after acquisition.
Short remaining lease terms — an NNN property with 2 years left on the lease will have a high cap rate because of retenanting risk. What does the property cash flow at if the tenant leaves?
Weak market fundamentals — high vacancy in the submarket, declining population, or major employer departures all signal risk that the cap rate is pricing in.
Use our cap rate calculator to run your own NOI — never rely on broker-provided figures without verification.
What Is a Good Cap Rate for Rental Property?
For single-family and small multifamily rental properties (the most common investment for individual investors), the benchmarks differ from institutional commercial real estate.
Single-family rentals:
- Hot markets (coastal, high appreciation): 3% – 5%
- Secondary markets: 5% – 7%
- Midwestern / tertiary markets: 7% – 10%+
Many individual investors apply the 1% rule — monthly rent should be at least 1% of the purchase price. A $200,000 property renting for $2,000/month meets this threshold. At typical expense ratios, this produces a cap rate of roughly 7–8%.
The 1% rule is a rough screening filter, not a precise underwriting tool. Always calculate actual NOI for any serious analysis.
What is a good cap rate for Airbnb? Short-term rental cap rates are calculated differently because income is variable and expense ratios are higher (management fees typically 20–30% of revenue, plus supplies and turnover costs). Many Airbnb investors target gross yields of 15–25% with net cap rates of 8–12% after all operating costs. Use actual comparable rental income data for your market — not optimistic projections.
Frequently Asked Questions
What is a good cap rate for commercial real estate? It depends on property type and market. Multifamily in primary markets trades at 4.5–5.5%. Industrial runs 5.0–7.0%. Net lease retail with national tenants is 4.5–6.0%. Class B office has expanded to 8.5–11.0%. Compare to other recent trades in the same submarket and asset class rather than a universal benchmark.
Is a 7% cap rate good? A 7% cap rate is above average for most stabilized commercial asset classes in 2026. For multifamily in a primary market it would be exceptional — possibly indicating a problem. For a strip center in a secondary market it is a solid, competitive return. Context is everything.
Is a higher cap rate always better? No. A higher cap rate means higher income relative to price — but it also means higher risk, lower demand, or both. A 10% cap rate on a Class C office building in a declining market reflects the risk priced in by the market. Always ask why the cap rate is high before treating it as a positive.
What is cap rate compression? Cap rate compression happens when cap rates fall over time, meaning prices rise faster than income. A property bought at a 7% cap rate that now trades at 5% has appreciated significantly even with flat NOI. Compression typically happens when interest rates fall or when strong investor demand floods into an asset class.
What is a going-in cap rate vs exit cap rate? The going-in cap rate is the cap rate at purchase based on current NOI. The exit cap rate (or terminal cap rate) is the rate you assume when selling at the end of your hold period. Conservative underwriting sets the exit cap rate 25–50 basis points above the going-in rate to account for market uncertainty.
What is a good cap rate for a rental property? For residential rental properties, 5–8% is typical in most secondary markets. Hot coastal markets often trade at 3–5% with appreciation expectations compensating for yield. Midwestern and tertiary markets may offer 8–10%+. Always calculate NOI accurately — do not use gross rent as a proxy.
Analyze Any Deal Now
Use our free cap rate calculator to calculate the exact cap rate on any property — and see how your result compares to the 2026 benchmarks by asset class.
→ Use the Free Cap Rate Calculator
Not sure how to calculate your NOI before running the cap rate? Start with our NOI calculator to break down every income and expense line item first.
Last updated: May 2026. Cap rate benchmarks based on CBRE H2 2025 Cap Rate Survey and current market data.
This content is for informational purposes only and does not constitute investment advice.
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