Cap Rates Repricing Signals Shift in CRE Strategy

Cap rates remain sticky despite higher interest rates, with national averages ranging from 5.4% (multifamily) to 7.3% (office), masking growing dispersion by asset class and region.
Seller resistance is softening in certain markets, as valuation gaps widen and aging assets, maturing debt, and capital needs push long-time owners toward re-pricing.
Buyers are underwriting more conservatively, focused on refinancing risk, operating costs, and tenant credit. Pricing is increasingly driven by real-time risk assessment, not past comps.
Liquidity is returning in select pockets, especially for well-leased small-format industrial and value-add office assets, as experienced buyers re-enter the market at adjusted price points.

Key Takeaways

Inside the Disconnect: Buyers vs. Sellers

More than two years into elevated interest rates, commercial real estate investors remain in a holding pattern—caught between rising costs and a valuation standoff. Lee & Associates reports that while capital markets have shifted, cap rates have stayed “sticky,” held in place by seller expectations rooted in the peak pricing era of 2021 and buyer recalibrations based on today’s risk profile.

Buyers and sellers aren’t necessarily far apart on paper—they’re just working from different economic dictionaries. Sellers are still referencing trailing comps, while buyers are pricing in refinancing costs, lease roll risk, and rising operational expenses.

Cap Rate Averages Obscure Growing Volatility

Lee & Associates’ Q2 2025 data shows relatively stable national cap rates:

Multifamily: 5.4%–5.7%
Industrial: 6.2%–6.5%
Retail: ~6.8%
Office: ~7.3%

But the real story is sectoral dispersion. Davidson Kempner highlights near-record spreads across office, hospitality, and non-credit retail, signaling investor hesitation and sector-specific repricing.

For instance, Class A industrial in Southern California still trades near 5%, but specialized assets like cold storage can climb to 6.6%, and suburban logistics facilities push toward 6.9%. Office, meanwhile, is seeing yields stretch beyond 8.5% in weaker submarkets.

Sellers Are Holding—But Cracks Are Appearing

In coastal and supply-constrained markets, sellers of grocery-anchored retail and small-bay industrial still enjoy pricing power. But elsewhere, especially in oversupplied multifamily and outdated office properties, the market is forcing capitulation.

In Seattle, multifamily sales volumes surged 92% in early 2025 as private owners began realigning pricing expectations. Nationwide, Days on Market (DOM) for office assets now average 239 days, a sign that the bid-ask gap remains—but is slowly narrowing.

The New Risk Premium in Underwriting

Today’s underwriting reflects a far more cautious investor base. Buyers are factoring in everything from tenant creditworthiness and capital expenditures to local tax environments and utility infrastructure. Lease renewal probabilities, insurance premiums, and building systems (e.g., HVAC, elevators, electrical panels) are now central to valuation.

CREXi and CoStar data show that even where asking prices have fallen, actual closing cap rates remain tight—proof that selective buyers are only transacting when they fully understand the downside.

Liquidity Returns—Selectively

While the broader market remains tentative, liquidity is flowing into targeted segments. Green Street recorded nearly $6B in Q2 industrial deals between $5M and $25M—a vote of confidence in smaller, more resilient assets.

Private capital, including family offices and high-net-worth individuals, is re-entering the market, particularly in discounted office markets like Manhattan, suburban New Jersey, and South Florida. In Seattle, tech professionals and experienced syndicators are seizing on pricing resets to reposition portfolios.

A Slow Path to Price Discovery

According to LightBox’s August 2025 data, listings and appraisals are down, suggesting cautious momentum rather than market paralysis. The path forward? One deal at a time.

Deals involving post-1990 multifamily or well-located necessity retail are shaping new pricing benchmarks. Meanwhile, rent-regulated assets in NYC and older Class B properties in less liquid markets are facing steeper discounts—or buyer flight altogether.

A Market Defined by Discipline, Not Distress

This isn’t a fire sale market. It’s a fundamentals-driven recalibration. The so-called “stickiness” of cap rates is less about pricing denial and more about the slow, nuanced process of reconciling differing risk assumptions.

Concessions, capex credits, and creative structuring are increasingly used to close valuation gaps. Buyers aren’t demanding across-the-board discounts—they’re underwriting for execution, not momentum.

As Lee & Associates frames it: “This isn’t capitulation—it’s negotiation.” The market is maturing, not collapsing.

Why It Matters

This moment represents one of the most meaningful corrections in the past decade—not because values are plunging, but because risk discipline is returning. In a higher-for-longer rate environment, investors must move beyond vintage playbooks. Core is no longer shorthand for safe. Momentum is no longer a viable strategy.

For seasoned investors, this recalibration is an opportunity to lean in, not sit out.