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Market Intelligence
Monitor NNN cap rate premium relative to risk-free rates
Data as of Live FRED Data · Sources: Federal Reserve, FRED, CoStar, CBRE Research
The current 185 bps NNN spread to 10-year Treasury is 25 bps tighter than the 5-year average of 210 bps, reflecting reduced risk premiums as market stability returns. This compression indicates investor confidence in NNN fundamentals and stabilized interest rate expectations. The spread remains above 2019 lows (150 bps) but well below 2022 peaks (240 bps), suggesting fair valuation relative to risk-free rates.
Spread compression occurs when NNN cap rates fall relative to Treasury yields, typically signaling improved market sentiment and reduced perceived risk. Compression benefits existing NNN investors through mark-to-market appreciation but reduces yields for new acquisitions. Current compression reflects recovery in tenant credit quality, stabilized lease terms, and improved occupancy metrics across the NNN universe.
A 100 bps Treasury rise with flat NNN spreads would push NNN cap rates to 6.72%, reducing property values 8-12% depending on leverage structure. Conversely, 100 bps Treasury decline with spread stability would improve NNN returns. The negative correlation between Treasury rates and NNN values creates asymmetric risk exposure—spreads tend to widen in risk-off environments when Treasury yields fall.
At 185 bps spread, NNN valuations appear reasonable relative to bond markets and equity real estate. The spread compensates adequately for credit risk, lease rollover uncertainty, and operational execution risk. However, if Treasury yields remain elevated, spread compression room is limited—further cap rate declines require either absolute Treasury decline or additional spread compression unlikely given current risk environment.
NNN spreads to Treasury have varied dramatically across market cycles. Pre-2020, spreads averaged 160-180 bps in stable environments. During COVID panic (March 2020), spreads exploded to 280 bps as credit concerns spiked. Post-vaccine recovery compressed spreads to 150-160 bps by 2021. The 2022 hiking cycle re-expanded spreads to 240+ bps as floating-rate risk emerged. Current 185 bps represents normalization between cycle extremes, near the long-term equilibrium level. Going forward, spreads will fluctuate with Fed policy expectations and credit cycle positioning.
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.