Capital markets
Why a 100 bps Move in Treasuries Does Not Move Every Cap Rate
Cap rates follow rates, but not one for one and not evenly across property types. The spread is where the information is.
The relationship between interest rates and cap rates is real and widely misstated. Rates are not a direct input to a cap rate, the cap rate is a function of what buyers require, and what buyers require moves with the risk-free alternative plus a risk premium. The link is real but loose, and the looseness is where the useful information sits.
The rough historical rule
A 100 basis point rise in the 10-year Treasury has historically produced somewhere between 50 and 75 basis points of cap rate widening. Not 100. The compression of the spread absorbs the rest, because capital does not simply leave real estate the moment bonds get more attractive.
More importantly, the pass-through is not uniform. It is weaker for supply-constrained property types and stronger for discretionary ones. When the Fed moved from near zero in 2021 to above five percent by 2023, office repriced hardest, retail and other discretionary categories moved meaningfully, and constrained industrial and gateway multifamily moved least.
Where things sat entering 2026
Nareit's implied cap rates for listed equity REITs in the first quarter of 2026 ran roughly: industrial 5.2 percent, self-storage 5.9, retail 6.2, residential 6.4 and office 7.7, with an all-equity average near 5.9. Those are implied from public pricing, not transaction going-in caps on a specific deal, and the two are not interchangeable, but the ordering tells you how the market is ranking risk.
Year over year the movement was small. Multifamily was essentially flat between the fourth quarters of 2024 and 2025, office widened slightly, retail widened marginally and industrial tightened marginally. CBRE's outlook for 2026 anticipated modest compression of five to fifteen basis points for most property types, with better-quality assets compressing more.
What to do with this when you underwrite
Do not model the exit cap as a forecast of interest rates. Model it as a range and find out where your deal stops working. The useful output is not "I assume a 7.25 percent exit", it is "this deal returns less than my hurdle above a 7.91 percent exit, which is 16 basis points of cushion."
Then ask whether 16 basis points is enough tolerance for a five-year hold. Usually it is not, and that is a better reason to walk than any view you might have about the Fed.
Test it: every acquisition model on this site solves for the exit cap at which the deal stops clearing your discount rate. Start with the cap rate calculator or NNN acquisition.
Related notes
How to read this. These are working notes. Figures come from public reporting and from the models on this site, and market conditions change, check anything time-sensitive against the source before you rely on it. Nothing here is investment, tax or legal advice, and no note is a substitute for diligence on a specific property.
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