If you’ve been tracking the commercial real estate market for any length of time, you know the 10-year Treasury yield isn’t just a number on a chart—it’s the benchmark that sets the tone for almost every investment conversation we have. But the real story, especially in this environment, lies in the spread between that yield and cap rates across different property types.
A
recent article by Erik Sherman for
GlobeSt dives into 10 years of yield spread data and how it correlates to CRE performance. It’s a great read, and it got me thinking: what can we learn from a decade of spreads, and how do we apply that insight to deals we’re evaluating
today?
Let’s take a look.
A Quick Primer on Yield Spreads
Yield spread = cap rate – 10-year Treasury yield.
It’s the premium investors demand over a “risk-free” investment. A wider spread means more perceived risk (or opportunity), while a tighter spread signals increased competition and confidence.
In 2015, the average CRE cap rate spread over the 10-year was around 393 basis points (bp). Today, it’s shrunk to about 180 bp—less than half that.
Translation: investors are accepting a much smaller risk premium in exchange for owning CRE, particularly in sectors seen as stable or growth-oriented. Whether that's sustainable is a different conversation.
Not All Property Types Are Created Equal
Back in 2015, most asset classes were clustered tightly together: retail, industrial, office, and multifamily all traded with cap rate spreads around 380–425 bp. Fast forward to Q1 2025, and those spreads have diverged dramatically:
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Office: 2.28% spread
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Retail: 1.62%
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Multifamily: 1.11%
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Industrial: 0.33% (!)
That last number should make you pause. Industrial real estate, the darling of the post-COVID economy, is now barely offering a premium over the 10-year Treasury. That's a testament to investor confidence—but also a red flag for pricing risk.
What This Means for Investors (and You)
So, how should you interpret this if you’re active in the market?
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Spreads are tighter—but that doesn’t mean risk is gone.
Spreads often narrow when money is cheap or when investor demand outpaces caution. That’s great for sellers, but buyers need to stay disciplined. Ask yourself: are you being compensated for the risk you're taking?
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Property type matters more than ever.
Cap rate spread used to be a blunt instrument. Now, it’s a scalpel. Office and industrial might be priced relatively close, but the risk profile couldn’t be more different. Office deals today come with a heavy discount—and for good reason. But if you're a long-term investor with a solid strategy, there's opportunity in that spread.
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The reversion trade is real.
If you believe interest rates will stabilize or fall further, and cap rates hold firm (or even compress slightly), there could be strong upside in buying now—especially in sectors where spreads have been slower to compress (like retail or selective office).
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Investors are getting choosier.
There’s a flight to quality happening—not just in asset type, but in tenant credit, location, lease structure, and even sponsorship. Cap rate spreads reflect this sophistication. Investors aren’t just chasing yield anymore; they’re chasing durability.
Final Thought: Yield Spreads Are a Window, Not a Rulebook
Erik Sherman’s article does a great job outlining the historical mechanics of yield spreads in CRE. But history isn’t predictive—it’s directional. If we want to succeed as advisors, buyers, or sellers, we have to combine data with what’s actually happening on the ground.
The good news? Markets always move. Spreads widen, contract, then widen again. Your job (and mine) is to stay informed, stay patient, and strike when the risk-adjusted return lines up with your goals.
If you’re evaluating deals or trying to time the market, I’m happy to walk through what cap rate spreads mean for your specific asset type or market.
Justin Langlois, CCIM is a Commercial Real Estate Advisor with Stirling Investment Advisors servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.
