Observe the differences
How does the comparison change?
Compare property types in one market, or compare markets for the same property type.
Cap rates over time
How much did the Treasury yield and the spread change?
| Selected series | Cap-rate change | Treasury change | Spread change |
|---|
Cap-rate change = Treasury change + spread change. This is an arithmetic comparison, not proof of causation. The spread also reflects growth expectations, risk, liquidity, and differences in income and capital-cost conventions. Cap rates may adjust with a lag. Changes are rounded to the nearest basis point.
What would the same income buy?
At the inspected quarter, assuming $1 million of annual stabilized NOI.
| Selected series | Cap rate | Spread over Treasury | Income multiple | Value at $1m NOI | Try this rate |
|---|
This is a controlled valuation comparison. Actual properties also differ in NOI, growth, capital needs, and risk.
Discuss: Is a higher cap rate a better investment?
Look at the apartment–office gap. What would you want to know before selecting the higher-cap-rate property?
Reveal the reasoning
A higher cap rate implies a lower price per dollar of the stated NOI. It may also reflect weaker expected growth, greater uncertainty, vacancy exposure, or future capital costs. The cap rate alone does not establish the expected total return or identify the cause of the gap. Check that both NOI measures use comparable conventions.
Explore variation within a market
How much does location matter?
Compare the spread of cap rates across submarkets, and see how local estimates vary around the market benchmark.
Snapshot as of September 27, 2024. These estimates are geographic benchmarks; they are not individual property transactions.
Cap rates within Orange County
Each dot is one submarket. Dots are stacked in rate bins to make overlapping estimates visible. Vertical position has no economic meaning.
View submarket estimates
| Submarket | Cap rate | Gap to market | Value at $1m NOI | Try this rate |
|---|
Discuss: Which cap rate belongs in an appraisal?
Choose two locations with different cap rates. Would a market-wide estimate be suitable for both properties?
Reveal the reasoning
The market rate is a starting benchmark. A property-specific estimate should also reflect location, condition, tenant credit, lease terms, occupancy, and expected capital spending. These files contain cap-rate estimates, but no property-level NOI, sale prices, or transaction counts to test comparability.
Connect the rate to the price
What changes the value?
Start with stabilized annual NOI. Change the cap rate, the NOI, or both, and trace the valuation effect.
Set the comparison
NOI is before debt service and income taxes. Property taxes are an operating expense. Reserves for capital spending require a consistent income definition.
Why the value response is nonlinear
Hold baseline NOI fixed to isolate the cap-rate effect.
| Value bridge | Amount |
|---|
The bridge changes NOI first, then applies the new cap rate. Total change is exact; attributing the interaction between the two changes depends on this order.
Why might a cap rate change?
Under a constant-growth perpetuity, cap rate = r − g, where r is the unlevered required return and g is long-run growth in the consistently defined property cash flow. These are independent teaching assumptions, not estimates inferred from the historical data.
The numerator is next year's stabilized income. Persistent capital costs must be reflected consistently in the cash-flow measure. If growth is temporary, income is unstable, or r ≤ g, use an explicit cash-flow forecast instead of this perpetuity formula.
Discuss: How much NOI growth offsets cap-rate expansion?
At an initial 5% cap rate, raise the rate to 6%. Try to restore the initial value by changing NOI.
Reveal the reasoning
NOI must rise by 20%: 6% ÷ 5% − 1. With NOI unchanged, value falls by 16.7%: 5% ÷ 6% − 1. The required NOI increase and the initial value decline have different percentage bases.
About this explorer
This tool uses historical cap rates to illustrate variation over time and across locations. Market trends span 2005 Q1–2024 Q3; local comparisons show a single 2024 Q3 snapshot as of September 27, 2024. These are historical illustrations, not current market quotes.
- Treasury benchmark: 10-year constant-maturity U.S. Treasury yield (DGS10), from the Board of Governors of the Federal Reserve System, retrieved through FRED, Federal Reserve Bank of St. Louis. Each quarterly value is the arithmetic average of available daily yields in that calendar quarter; missing days are omitted without interpolation. Yields remain annualized, not divided by four. The same 2005 Q1–2024 Q3 window is used for both series. The local September 27 snapshot is compared with the full 2024 Q3 average, so observation timing differs.
- Reading rates: 100 basis points equal 1 percentage point. A cap rate measures annual income relative to value; it does not measure total investment return.
- Comparing values: the value index holds NOI constant to isolate the cap-rate effect. It is not an observed price index. Rates transferred to the valuation exercise use the displayed two-decimal precision.
- Using benchmarks: market and local estimates illustrate geographic differences. The reported weighted average is a separate benchmark, not a simple average of the displayed locations.
- Interpreting patterns: differences can reflect growth expectations, risk, and capital needs. These charts alone cannot establish what caused them.