Cap Rates

State of Current Real Estate Capital Markets

Release Date

In September 2022, the Chicago Chapter of The Society of Industrial and Office Realtors (SIOR) hosted its fall Speaker Series. The discussion focused on the state of capital markets in commercial real estate. Key takeaways include: 

  • Interest rates have taken a toll on underwriting in all asset classes.
  • Multiple banking relationships have never been more important, as many non-traditional lending sources have evaporated and the CMBS market is frozen.
  • Most active buyers today are all-cash or low levered.
  • The large transaction market is non-existent.
  • Re-trading deals has been common this year, typically 10-30%.
  • Auction sites are seeing some success with the rapid speed of execution.


Cap rates in the single tenant net lease sector increased slightly for all three (3) sectors in the third quarter of 2022. For the first time the past two (2) years, cap rates increased for two (2) straight consecutive quarters. Single tenant cap rates increased to 5.86% for retail, 6.80% for office and 6.61% for industrial in the third quarter of 2022. As the Federal Reserve continues to increase rates in an attempt to curb inflation, debt costs have increasingly put upward pressure on cap rates for buyers of net lease properties.

As economic pressure mounts, formerly opportunistic sellers removed properties from the market that were attempting to take advantage of the historically low cap rate environment. In the third quarter of 2022, the supply of net lease properties decreased by more than twelve percent (12%) when compared to the prior quarter. Furthermore, buyers and sellers have yet to agree on pricing levels given the current environment and a period of price discovery continues. 

The rising rate and inflationary environment impacted acquisition criteria for net lease buyers. Investors demand properties with rent growth or the ability to increase rents in the near term are in the greatest demand. Investors expected cap rates to widen for non-core net lease deals with short term leases, lesser tenants or secondary markets. This has yet to occur on a wider scale, causing a wait and see approach for many investors. 

The capital markets will continue to impact the overall net lease market. Investors will be carefully monitoring the Federal Reserve's monetary policy, and its impact on their borrowing costs. 

Cap Rates