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Market Intelligence
Cap rate benchmarks by sector, credit tier, and geography
Data as of Q4 2025 · Sources: Federal Reserve, FRED, CoStar, CBRE Research
Retail NNN properties trade at 5.85% cap rates for investment-grade tenants, up 22 bps from year-start as rate normalization continues. Industrial properties remain the tightest at 5.45%, reflecting strong operational demand and limited supply. Office properties command a 135 bps risk premium at 7.20% due to occupancy and lease-up risks. Medical-focused NNN properties average 5.90%, benefiting from essential service demand and aging demographics.
AAA-rated tenant properties (Realty Income tenants) trade at 5.2-5.4% cap rates. A-rated tenants command 5.6-6.2% yields. BBB-rated tenants trade at 6.5-7.5% with additional credit risk premium. Non-investment-grade tenants average 8.0%+ cap rates. This 280 bps spread between AAA and non-IG represents fair compensation for credit risk and covenant weakness.
Primary markets (NYC, LA, Chicago, Boston) average 5.2% cap rates on trophy NNN properties. Secondary markets (Raleigh, Nashville, Denver) trade at 5.8-6.2%. Tertiary markets average 6.5-7.0% cap rates. Geographic arbitrage opportunities exist for investors seeking yield without sacrificing tenant quality.
NNN cap rates averaged 5.1% in 2021 at the market peak, then expanded to 6.8% in late 2022. Current 5.72% represents 96 bps compression from that peak, reflecting recovery in asset valuations and investor confidence. Comparison to 10-year Treasury at 4.25% provides 147 bps NNN spread, near historical averages.
Cap rates have normalized from pandemic extremes. In 2020, NNN cap rates spiked to 6.2% average as spreads widened dramatically. By 2021, rate cuts and risk-on sentiment compressed rates to 5.1%. The Fed's 2022-2023 hiking cycle re-expanded cap rates to 6.8%, before current partial normalization to 5.72%. This cycle demonstrates the tight link between risk-free rates and NNN valuations. The current 147 bps spread to the 10-year Treasury is historically reasonable.
Data and analysis on this page are for informational purposes only and do not constitute investment, financial, or tax advice. Figures may be estimated from publicly available sources and should be verified with primary data providers (CoStar, MSCI RCA, CBRE, FRED) before use in investment decisions. Past performance does not guarantee future results.