Cap Rate

Q2 2026 Cap Rate Outlook Report

August 10, 2026

In Q2 2026 Commercial Cap Rates slightly compressed, averaging for Multifamily 5.2%, Industrial 5.2%, Retail 6.7%, Office 7.9% and Hotels 7.5%. Office properties increased the most in value, with cap rates compressing 87 bps from a year ago. Vacancy rates for all property types declined averaging for Multifamily 6.2%, Industrial 7.3%, Retail 7.8%, Office 18% and Hotel 32%. 

Multifamily

In Q2 2026, multifamily cap rates for Class A and B properties compressed 5 bps to an average of 5.2% despite slightly declining rents. This is due to higher absorption of newly built inventory and declining vacancy to 7.2%. Cap rates for Class C properties held steady as rents remained flat with vacancy declining to 6.2% as reported by Colliers.  According to Freddie Mac, net absorption of class A and B properties rose from Q1 2026, resulting in lower vacancies and lower rental concessions.  Class C properties remained stable.  Sales prices have held during Q2 despite slightly lower rents and continuing high interest rates.  This has resulted in market optimism.

Industrial

Industrial Cap rates have compressed in Q2 2026, averaging 5.2% as net absorption totaled 58 million square feet, according to Colliers. This is mainly due to high tenant demand and lower delivery of new construction.  With vacancy decreasing to 7.3%, and rents increasing 4.2%, industrial property values have risen to their highest in three years.  With older supply leasing up at a faster clip, and deliveries from new construction doing the same, industrial is looking to be one of the most promising investments for 2026.     

Retail

With competition from e-commerce sales rising to 16.9% and the average price per square foot declining from 2025, Q2 2026 cap rates on malls expanded up to 6.9% and compressed on retail strip centers down to 6.4%, with a combined average of 6.7%, according to Cushman and Wakefield.  Big box stores have experienced a 25% decline in rental income over the past year. This has resulted in cap rates averaging 7.8% for these assets.

For Q2 2026, CBRE reports malls at an average cap rate of 6.9% with small strip malls averaging 6.4 and single tenant net lease retail cap rates at 6.80%.  This reflects a continuation of the retail trends from 2025 as delivery of new space continues to slow net absorption. Regardless, pre-leasing has remained steady with rent growth well below inflation at 2.7%. 

The National Retail Foundation forecasts that retail will slow during the remainder of 2026 and predicts that 34.4% of consumers plan to spend less on retail goods. 

Office

As of Q2 2026, office cap rates are averaging 7.9% for Class B and C properties and 6.0% for class A premium assets. In mid-2025, office properties showed positive signs of stabilizing for the first time since the covid pandemic decimated this sector. As of the second quarter of 2026, the office market absorption rate has greatly improved as the vacancy rate lowered to 18% from its high of 26% according to Colliers.

High-quality assets in prime markets have gained most of the momentum due to stellar tenant improvements that have kept employees spending more time at the office. With the exception of medical office, there is currently low new construction of new office space. 

Return on investment has improved on class B and C office properties from a year ago, as tenant improvement expense has shifted more to the tenant and less to the landlord. However generous rental concessions are still being offered for long-term leases for the first 2 years lowering ROI.   

Hotel/Hospitality

Cap rates for the hospitality sector averaged 8.5% in the second quarter of 2026 as reported by the American Hotel Income Property Report.  Cap rates for flagged upscale properties in large markets achieving lower vacancy had cap rates compress to 5.5%  Dated properties in these markets had cap rates of 7%. This growth has been fueled by low levels of new deliveries. Lower quality assets in tertiary markets that experienced higher vacancy rates averaged cap rates between 8.5% to 11%. 

Despite the cost of travel due to increasing prices for gasoline and jet fuel, hospitality occupancies have remained constant, averaging 78% for primary market upscale properties and 64% for lower quality assets in smaller markets according to CBRE. 

While national hotel occupancy and ADR are still going up, RevPAR growth is expected to rise throughout  2026. It is noteworthy that most hotel chains are predicted to experience increased RevPAR in the remainder of 2026. RevPAR increased by 7.5% to $114 for Q2 of 2026, compared to $106 for the same period of 2025, with ADR increasing to 4.3% during this period. 

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