There is no universal "good" cap rate. The right cap rate depends on your market, asset class, hold strategy, and risk tolerance. Here's a complete breakdown of where cap rates sit in 2026 and what they mean for your underwriting.
The Short Answer
- Coastal gateway markets (SF, LA, NYC): 3.5–5.5%. Low yield, high appreciation potential.
- Sun Belt growth markets (Phoenix, Dallas, Atlanta): 5–7%. Balance of yield and growth.
- Midwest cash-flow markets: 7–10%+. High yield, moderate appreciation.
- Distressed assets (office, some retail): 8–12%+. Price has fallen to compensate for risk.
2026 Cap Rate Benchmarks by Market
| Market | Asset Type | Cap Rate Range | Trend |
|---|---|---|---|
| San Francisco Bay Area | Multifamily | 3.5–5.0% | Compressed |
| Los Angeles | Multifamily | 4.0–5.5% | Compressed |
| Phoenix / Scottsdale | Multifamily | 5.0–6.5% | Normalizing |
| Dallas / Fort Worth | Multifamily | 5.5–7.0% | Stable |
| Midwest (Columbus, Indianapolis) | Multifamily | 6.5–9.0% | Cash flow |
| National — Strip Retail NNN | NNN Retail | 5.0–7.5% | Rising |
| National — Industrial | Industrial | 5.5–7.0% | Normalizing |
| National — Office | Office | 7.0–10%+ | Distressed |
Why Cap Rate Isn't Enough
Cap rate tells you the property-level yield. It tells you nothing about your financing cost, your IRR over a 5-year hold, or whether the deal cash-flows after debt service. A 5.5% cap rate in Dallas with 7% financing creates negative leverage — your borrowing cost exceeds your yield. CCIM-trained analysts always run cap rate, DSCR, and IRR together.
Cap Rate vs. Interest Rates in 2026
The relationship between cap rates and the 10-year Treasury is called the "spread." Historically, CRE trades at a 150–250 basis point spread over Treasuries. In 2026, with the 10-year around 4.2–4.5%, a normalized spread would put cap rates at 5.7–6.7% nationally. Many markets are still below that range — meaning prices are still elevated relative to rates, and further price correction is possible in non-gateway markets.
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