Commercial real estate has absorbed another rise in Treasury yields without the broad repricing that investors might have expected, with the all-property average cap rate essentially unchanged during the first half.
The 10-year Treasury yield climbed sharply, peaking at 4.67% in mid-May and standing near 4.6% in mid-July, but property values are no longer mechanically repricing every time benchmark rates move higher.
Market Trends
CBRE’s first-half cap rate survey shows a market in which average pricing is holding up, while confidence in where values will go next is becoming increasingly fragmented, with the eastern U.S. recording more cap-rate compression than other regions.
Lower-quality and value-add assets also generally experienced more compression than Class A and stabilized properties, with neighborhood retail recording the largest average compression, followed by hotels and industrial.
Class A neighborhood retail in Albuquerque moved from 7.25%-7.75% in H2 2025 to 6.75%-7.25% in H1, while Houston moved from 6.5%-7% to 6%-6.75%, but New York retail moved in the opposite direction, from 4.5%-5.5% to 5.75%-6.25%.
Investor Expectations
The change in sentiment may be more significant than the movement in current cap rates, with respondents overwhelmingly expecting cap rates either to remain unchanged or decline in CBRE’s December survey, but by June, roughly 60% still expected no change, while a larger group anticipated cap-rate expansion.
Infill multifamily produced the most bearish overall outlook, with 28% of respondents expecting cap-rate expansion, compared with 8% expecting compression, and for Class C suburban multifamily, 25% expected expansion and only 9% compression.
By contrast, 40% of respondents expected compression for Class A industrial, against just 5% expecting expansion, pointing toward a market increasingly willing to distinguish between durable income and riskier cash flows.
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Office Sector
Office remains the clearest exception to the improvement in price discovery, with the spread between CBRE’s lower and upper office cap-rate estimates widening again, while spreads narrowed for other major property types.
The report specifically attributes the volatility to continued uncertainty around lower-quality Class B and C assets, with individual markets showing how large that uncertainty can be, such as downtown Minneapolis stabilized Class A office carrying an estimated cap-rate range of 11%-13.5%.
Chicago’s downtown ranges between 9.25%-11% for stabilized Class A and 10.75%-12.75% for value-add properties, implying that underwriting office acquisitions remains unusually sensitive to assumptions about leasing, capital requirements, and exit values.
Financing and Deal Volume
However, the same resilience means spreads remain under pressure and financing costs can continue to constrain transactions, arguing against waiting for a uniform market recovery, as retail, industrial, and selected markets are already showing pricing strength.
Parts of multifamily face greater expansion risk and office remains difficult to price, and if Treasury yields stay well above the identified levels, the next phase of the cycle is likely to be driven less by falling cap rates across the board and more by asset selection, income growth, and the ability to execute individual business plans.
They are focusing on immigrant investor programs.
It is clear that the market is holding up.
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