There’s no good answer to “what is a good cap rate?” and that’s the first thing worth saying.
The question itself contains a flawed assumption: that cap rates can be evaluated as good or bad in isolation. They can’t. A cap rate is a market-derived price, not a quality grade. Whether a 5% cap rate is good depends on what you’re buying, where it sits, who’s in it, what shape it’s in, and what your cost of capital looks like. The same cap rate can be aggressive on one deal and conservative on another.
I spent 10 years on the buy side at Stockbridge Capital, the last five as Director of Research. We closed more than $2B in CRE. The number of times I heard someone ask “is this cap rate good?” in an IC meeting was zero. The actual question — the one IC members spent the hour asking in different forms — was always some version of: is this cap rate the right price for this specific risk-adjusted income stream relative to comparable trades and our return targets?
That’s a longer sentence. It’s also the right question. This guide unpacks it.
Why “good cap rate” is the wrong framing
Cap rates exist on a spectrum that runs from extremely tight (3-4% for trophy gateway multifamily or credit tenant net lease) to extremely wide (10-12%+ for distressed suburban office or tertiary market commodity assets). Both ends of the spectrum can be the right cap rate. Both can also be the wrong cap rate. The number alone tells you almost nothing.
What the cap rate actually does is encode several things in a single percentage:
- Risk-adjusted required return. A buyer paying a 5% cap rate is implicitly saying they require less yield than a buyer paying 8%. That difference reflects either different cost of capital, different return expectations, or different views on the asset’s risk.
- Growth expectations. A tight cap rate priced into rapidly growing rents implies real returns that look much different than the same cap rate on a flat-rent asset. The cap rate compresses or expands based on growth.
- Capital structure. Cap rate is unleveraged. The actual return at the LP level depends on what debt structure each buyer can put on the asset. A buyer with cheaper debt can pay a tighter cap rate and still hit IRR targets.
- Comparable trades. The market clearing cap rate for any specific asset is set by other buyers. If recent comps clear at 5.50%, that’s the market cap rate regardless of your view of risk or growth.
A “good” cap rate is the one that correctly prices all four of those at once. There is no universal answer.
2026 cap rate benchmarks by asset class
These are analyst-level guidance ranges based on market observation as of mid-2026. They are directional, not authoritative. Cap rates shift quarter to quarter as transaction volume, interest rates, and risk sentiment move. Before using any cap rate to price an actual deal, verify against current transaction data from CoStar, Real Capital Analytics, Green Street, or — most reliably — your broker’s recent confidential comp set for the specific submarket.
Multifamily
| Sub-category | Cap Rate Range (2026) |
|---|---|
| Class A primary market (gateway, top Sun Belt) | 4.75-5.50% |
| Class A secondary market | 5.25-6.25% |
| Class B value-add (primary) | 5.75-6.75% |
| Class B/C tertiary | 6.50-7.75% |
| Student housing | 5.50-7.00% |
| Senior housing (independent living) | 6.00-7.50% |
| Senior housing (assisted living, memory care) | 7.50-9.00% |
Multifamily has been the most resilient cap rate range through the rate-up cycle. Population growth in Sun Belt MSAs and persistent housing undersupply have kept demand for stabilized product strong. The risk markers to underwrite carefully: rent growth normalization off 2022-2023 peaks, expense growth (especially insurance), and the supply pipeline in over-built submarkets.
Industrial
| Sub-category | Cap Rate Range (2026) |
|---|---|
| Trophy NNN credit tenant (Amazon, FedEx, etc.) | 4.50-5.25% |
| Class A modern bulk distribution (primary) | 5.00-6.00% |
| Class A last-mile / infill | 5.25-6.25% |
| Class B distribution (primary) | 6.00-7.25% |
| Secondary market industrial | 6.50-8.00% |
| Flex / light industrial | 6.75-8.50% |
| Cold storage | 5.75-7.00% |
Industrial cap rates compressed dramatically in 2020-2022, expanded materially in 2023-2024, and have stabilized through 2025-2026. The asset class still attracts the deepest institutional capital pool. Watch for: market rent normalization (some submarkets have given back 10-15% of peak rents), tenant rollover risk, and short-WALT assets where the next leasing cycle determines economic outcomes.
Office
| Sub-category | Cap Rate Range (2026) |
|---|---|
| Trophy Class A gateway CBD | 5.50-7.00% |
| Class A primary CBD | 7.00-8.50% |
| Class A suburban | 7.50-9.00% |
| Class B suburban | 8.50-10.00%+ |
| Class B/C commodity office | Largely unbid; 11.00%+ when traded |
| Medical office | 6.00-7.50% |
| Life sciences (lab) | 6.25-7.75% |
Office is the asset class where cap rates tell you the least. The bid-ask spread is wide, transaction volume is thin, and reported cap rates can reflect either heavily marked-down purchase prices on distressed assets or institutional buyers paying full price on the small subset of trophy assets that have demonstrated tenant demand. Treat any office cap rate as the start of an investigation, not the end of one. Medical office and lab space behave more like specialty industrial than traditional office.
Retail
| Sub-category | Cap Rate Range (2026) |
|---|---|
| Grocery-anchored neighborhood | 6.00-7.25% |
| Power center | 6.75-8.00% |
| Lifestyle / mixed-use | 6.50-8.00% |
| Single-tenant net lease (investment grade) | 5.25-6.50% |
| Single-tenant net lease (sub-IG) | 6.50-8.50% |
| Strip / unanchored | 7.00-9.00% |
| Regional mall | 8.00-12.00%+ |
Grocery-anchored retail has been the surprise outperformer of the rate cycle — recession-resistant tenant base, low supply, and strong replacement cost economics. Single-tenant net lease cap rates move tightly with the 10-year Treasury and credit spread. Regional malls remain the toughest valuation problem in CRE; the reported caps reflect distressed pricing, not stabilized economics.
Hotel
| Sub-category | Cap Rate Range (2026) |
|---|---|
| Luxury full-service (urban gateway) | 6.50-8.00% |
| Upper upscale full-service | 7.50-9.00% |
| Select-service (branded) | 8.00-9.50% |
| Limited-service / economy | 9.00-11.00% |
| Resort | 6.75-8.75% |
Hotels carry the highest operational leverage of any asset class. The cap rate above is calculated after FF&E reserve and management fees, both of which are real operating costs. Reported NOI in offering materials sometimes excludes these — when comparing cap rates, confirm the NOI definition. A hotel cap rate quoted on pre-management-fee, pre-FF&E NOI is not comparable to one quoted on properly calculated NOI.
How to triangulate the right cap rate for a specific deal
Forget the question of whether a cap rate is good in the abstract. The right framing on any specific deal is: what should I pay, expressed as a cap rate? That’s a triangulation, not a lookup.
1. Start with the market view
What are comparable assets actually trading at? This is not the broker’s pitch. This is the most recent legitimate transaction data:
- Recent closed sales of similar-quality assets in the same submarket (the broker’s confidential comp set, supplemented with public databases).
- Recent broker opinions of value or BOVs prepared for refinancing.
- Asking cap rates on assets currently in the market (with a haircut for the bid-ask gap, typically 25-50 bps).
- Public REIT pricing as a long-distance directional signal, adjusted for the public-private premium.
The market cap rate is what other buyers are paying. It’s the strongest single anchor in the triangulation.
2. Layer in your hurdle rate
Your firm has a required return — an LP-promised IRR, a fund-level cost of capital, an unleveraged yield threshold. Back into the cap rate that would deliver your hurdle rate on this specific deal:
- Project NOI growth over your hold period (conservatively).
- Assume an exit cap rate, typically 25-75 bps wider than the going-in.
- Layer in the capital structure you can put on the asset.
- Solve for the going-in cap rate that, combined with the above, hits your hurdle.
If your hurdle-driven cap rate is materially tighter than the market cap rate, you’re either being more aggressive than the market or you’re seeing growth no one else sees. Both are positions worth taking — sometimes — but be honest about which one you’re in.
If your hurdle-driven cap rate is materially wider than the market cap rate, you’re not going to win the deal. Either find a way to underwrite differently or pass.
3. Risk-adjust for the specific asset
The market cap rate is for a comparable asset, not this asset. Adjust:
- Tenant credit. A single-tenant building with a BBB tenant on a 12-year lease deserves a tighter cap than the comp set. A multi-tenant building with sub-investment-grade tenants and rolling leases deserves a wider cap.
- Lease term. Long-WALT (weighted average lease term) deserves a tighter cap; short-WALT, especially in soft submarkets, deserves a wider cap.
- Rent vs. market. Above-market rents that face roll risk deserve a wider cap. Below-market rents with renewal upside deserve a tighter cap.
- Capital needs. $40/SF of pending capital deserves a wider cap or, equivalently, an NOI deduction.
- Submarket trajectory. Comps reflect the past 12-18 months. If the submarket has turned, adjust accordingly.
These adjustments are where senior judgment lives. They’re also where most of the disagreement on a deal happens. The point isn’t to reach a precise number — it’s to be explicit about the adjustments and defensible at IC.
4. Stress-test against your downside
The cap rate you’re paying needs to survive a stress case. If NOI drops 15% (because vacancy spikes, a major tenant leaves, or expenses run higher than underwritten), what does your effective cap rate look like? If exit caps widen 100 bps from your assumption, what does your IRR look like?
The deals that go wrong are not the ones priced incorrectly on the base case. They’re the ones where the stress case wasn’t run, or was run too gently. A cap rate that looks great in the base case but only delivers a 4% IRR in a moderate downside is not a good cap rate. It’s an unhedged bet.
Where the cap rate stops being the right metric
For stabilized core and core-plus deals, the cap rate is the right primary metric. For other deal types, it’s at best a secondary check:
- Value-add deals are more accurately priced on yield-on-cost over the hold (Year 3-5 NOI divided by total basis). The going-in cap rate is a measure of how much yield you’re giving up to acquire the value-add story.
- Development deals don’t have a cap rate at all in the conventional sense. They have a yield-on-cost (untrended) and a stabilized yield (trended), and the comparison is between yield-on-cost and the market cap rate on stabilized comps. The spread is the development premium.
- Distressed assets where NOI is unrepresentative or negative don’t have a cap rate. They trade on basis per unit, basis per SF, or replacement cost ratios.
- Hospitality and operating assets trade on cap rates but with NOI definitions that include reserves and management fees most other asset classes ignore.
Knowing when the cap rate is the right metric is part of using it well.
The IC-level question
When the cap rate comes up in an IC discussion, the question that actually matters is not “is this cap rate good.” It’s: “is this the price at which we want to own this risk for the next 5-10 years, given everything we know about the asset, the market, and our portfolio?”
That question requires a defensible NOI build, a credible comp set, a tenant-by-tenant risk assessment, a clear capital plan, and a stress test. The cap rate is the output of all of that work, not the input.
The reason we built DDee.ai is that the analytical work behind a defensible cap rate — lease abstraction with citations, tenant credit scoring with default probability, financial normalization, red flag detection, and IC-ready packaging — was the bottleneck on every acquisition I worked on during my buy-side career. Cap rate disagreements at IC almost always trace back to disagreements about the underlying NOI or risk inputs. The platform is built around making those inputs verifiable, traceable, and consistent across every deal.
The number at the top of the IC memo matters. The work behind it matters more.