In 2025, the CRE market shifted to a new landscape as interest rate volatility eased and economic conditions stabilized. Investors recalibrated their strategies to adjust to the new environment, and the key metric for this re-evaluation is cap rate performance. 

 

Understanding cap rates in the current environment is essential for any investor. Cap rates, the ratio of a property’s Net Operating Income (NOI) to its market value, is a reflection of risk, market fundamentals, and future growth potential.

 

Below are what investors should focus on for cap rates across retail, net lease, multifamily, and industrial.

 

2025 Market Performance

The Federal Reserve cut interest rates in September for the first time in nine months. Interest rate cuts have been a major anchor for cap rates, as well as inflation. As inflation noted moderate levels, it led to a more predictable environment for real estate investment.

 

However, these levels don’t mean the market will return to the low-rate, high-growth environment noted in prior years. Debt is still more expensive than it was a few years ago, and many investors remain on the sidelines. As a result, a good cap rate in 2025 is not a one-size-fits-all number. It’s a rate that aligns with an investor’s specific risk tolerance and investment goals. A lower cap rate in a stabilized, core market may be ideal for a low-risk, steady income strategy, while a higher cap rate in a value-add property might suit an investor looking for higher returns with more work.

 

Retail: Activity Driven by Essentials and Experience

The retail sector continues to show resilience in 2025. While some traditional retail spaces face challenges, well-located, service-oriented, and essential retail centers are thriving. Cap rates in this sector reflect this divergence.

 

Essential Retail

Grocery stores and drugstores have proven to offer strong, consistent cash flow. Cap rates for premium, well-leased assets in this category remain compressed, reflecting high demand and perceived stability.

 

Matthews™ Associate Princeton Douglass, who specializes in drugstores across Florida, stated that drugstores here have traded at lower levels compared to other states. He shared an example of a Walgreens in Kissimmee with only three years remaining that traded in August at a 7.63% cap rate. “This goes to show that location makes all the difference as we are seeing the same format deals trade in double-digit cap rates in other regions,” he said. “I expect this trend to continue as uncertainty grows in the drugstore space and buyers will be more focused on where properties are located.” 

 

Douglass added that Walgreens will benefit moving forward, due to the company going private. “I think we will see more smaller-format stores emerge, along with locations in better markets,” Douglass said. “We have already seen a handful of newly-constructed locations in Florida.”

 

QSR’s and Convenience Stores

According to Matthews™ Associate Vice President Jake Linsky, cap rates for QSRs rose at the beginning of 2025, but remained stable since then. “One of the primary drivers of this increase is the higher cost of capital,” Linsky said. “As a result, transactional volume slowed, leading to a buildup of inventory on the market. With this oversupply, buyers have had greater leverage in selecting assets, giving them a clear advantage over sellers.” 

 

 

Despite recent interest rate cuts from the Fed, Linsky stated that he expects cap rates to maintain the same stability. “Many investors I’ve spoken with expect immediate cap rate compression following a rate cut,” he said. “However, this is rarely the case.” Cap rates will typically lag eight to six months after an interest rate adjustment. In order for cap rates to drop, the oversupply of inventory must be accounted for. “Once the backlog of inventory is absorbed, we are more likely to see meaningful cap rate compression,” Linsky added. 

 

 

Similar to QSRs, convenience stores have maintained stability throughout 2025. Despite stable cap rates across this tier, Matthews™ Associate Nick Seltzer stated that the signing of the Big Beautiful Bill aided in maintaining stabilization. “We have noticed a slight 10-15 basis point compression in Absolute NNN gas station deals following the signing of the Big Beautiful Bill in July, reinstating 100% bonus depreciation permanently.” 

 

 

Upon the addition of 100% bonus depreciation, Seltzer said that a supply of inventory on the market became priced more aggressively. “Credit-worthy deals trade in the low- to mid-5% cap rate range, while short-term credit-worthy deals push above a 6% cap,” Seltzer stated. “Smaller unit operators tend to be priced well above a 7% cap rate, due to the added guarantor risk.” 

 

 

Seltzer added that cap rates are expected to remain steady as the year finishes. “The 10 to 15 basis point premium will hold as the market continues to factor in the advantageous tax benefits,” Seltzer said. “We also anticipate a surge in convenience store activity in the fourth quarter as investors seek these assets to mitigate their tax exposure before year-end.”

 

Additional Retail Segments

Value-Add Properties

Investors are finding opportunities in older, underperforming retail centers. These facilities often note higher cap rates at 8% or more. Additionally, value-add locations may occupy prime sites and can be repositioned for multi-tenant use, medical offices, or other formats that meet consumer demand.

 

Net Lease: Stability Attracts Investments

The net lease market remains a favorable option for investors seeking long-term, passive income. This sector, defined by single-tenant properties with long-term leases where the tenant is responsible for most or all operating expenses, is seeing strong performance as stability becomes a priority.

 

 

Cap rates for net lease properties are also showing signs of stabilization. In the first half of 2025, median cap rates for retail net lease assets saw a slight decrease, with the price per square foot rising. This is driven by renewed confidence in well-leased assets and a flight to quality.

 

Emerging Sectors

Beyond traditional retail, net lease sectors are gaining traction. For example, car washes are attracting heightened investor demand due to favorable demographics and attractive tax benefits. These properties often trade at slightly higher cap rates, reflecting their more specialized nature.

 

Multifamily: A Split in Performance

The multifamily sector noted varied activity in 2025. Across the country, Class A buildings averaged around 5% cap rates, while the Class B tier recorded higher cap rates at 7%. Matthews™ Vice President Eric Helwig stated that the 5% cap rates for the Class A tier can be attributed to the cost of debt for those assets, as well as equity return requirements for those buyers. “That sector of the market is still very active as institutional buyers look to acquire assets constructed within the last five years at attractive valuations,” Helwig said. “On the Class B and C side, those cap rates are closer to 7.0% locally and nationally. Investors are looking for 7-8% equity yields on current income to compensate for perceived risks with those assets.” 

 

 

Matthews™ Executive Vice President and Senior Director Mark Bridge added that the divide was also prevalent across smaller and larger multifamily properties. “The smaller assets saw less significant cap rate increases, as the larger multifamily buildings saw more significant cap rate rises, due to the function that higher rates have played a part in the financing of purchasing larger buildings,” Bridge said. 

 

 

Another ongoing split across multifamily is the difference in cap rates depending on location. Matthews™ First Vice President and Associate Director Connor Kerns, who specializes in Atlanta multifamily, said he has noticed good quality products in the metro’s preferred locations noting 5% to 6% cap rates, while lower-income neighborhoods recorded 7% to 8% cap rates. “We expect to see similar cap rates moving forward in the near future until there is a significant impact to the 5, 7, and 10-year treasury rates,” Kerns said. 

 

Looking Ahead

Kerns added that while the recent interest rate cuts from the Fed are not enough to fully decrease cap rates, it is a step in the right direction. “There is more optimism entering the multifamily sector in anticipation for more interest rate cuts in the near term,” Kerns stated.

 

Industrial Update

After the oversupply of industrial added during the pandemic, the sector began to stabilize throughout 2025. Transactions under $10 million were the most prevalent, driven by private capital investments; meanwhile, institutional buyers were most active for transactions over $50 million. 

 

 

According to Matthews™ Vice President Andrew Wiesemann, cap rates have fallen between 6.5% to 7.5% for single assets. Across multi-tenant facilities, cap rates have increased throughout the year and are now in the 6% range. 

 

 

Looking to 2026, single-tenant deals may begin to note more investor interest due to stable performance. Cap rates for industrial are expected to record a recovery and stabilization, driven by the anticipation of further rate cuts from the Fed.

 

Overall Trends for 2025

Performance throughout this year proves that the CRE sector has a variety of measured opportunities. The market is rewarding careful underwriting and a deep understanding of local market dynamics and property fundamentals.

 

 

Across all sectors, the strength of the tenant is an essential factor in determining a property’s viability and cap rate. Additionally, facilities in prime locations with strong demographics will continue to outperform. By understanding the evolving cap rate environment across property types, investors can make informed decisions and find compelling opportunities in the year ahead.