Market Data
Valuation Metrics

CRE Spread Analysis

Understand NNN cap rate premiums over Treasuries, spread compression drivers, and valuation implications for property investors.

Data as of 10Y as of Oct 6, 2026
NNN Spread
155bps
Above 10Y Treasury
10Y Treasury
5.27%
Risk-free rate
NNN Cap Rate
6.82%
Required return
Spread Status
Tight
Relative valuation

How the Spread Works

The Spread Formula
10Y Treasury (5.27%)
+ Risk Premium
(1.55%) 155 bps
NNN Cap Rate (6.82%)
Why Spreads Matter
The spread represents the additional yield investors demand for taking on credit, liquidity, and operational risk versus holding risk-free Treasuries. Tighter spreads suggest strong investor confidence and limited risk premiums. Wider spreads indicate heightened risk aversion or weaker market conditions.

NNN cap rates equal the risk-free Treasury rate plus a risk premium (spread). This spread compensates investors for tenant credit risk, property-specific operational risks, liquidity constraints, and market uncertainty. When spreads compress, it signals investors are willing to accept lower risk premiums-indicating strong demand and confidence in the asset class.

Conversely, when spreads widen, investors demand higher yields to compensate for perceived risks. This often occurs during economic slowdowns or significant interest rate changes. Understanding spread cycles helps investors time entries and exits in the NNN market.

The calculated spread is 155 bps: the Boulder Group Q2 2026 cap rate minus the stored 10-year Treasury. It is not a quoted sector spread.

Sector spreads

Retail and industrial cap rates from the same Boulder Group Q2 2026 report are 6.60% and 7.25%. This page does not invent a spread for medical, QSR, or other property types by adding or subtracting basis points from the overall spread.

Spread Analysis Drivers

Historical Context

  • Spreads average 300-350 bps during normal market conditions
  • Pre-2020: Compressed to 250-280 bps during low-rate era
  • 2020 Pandemic: Widened to 500+ bps as uncertainty spiked
  • Post-2021: Normalized to 300-350 bps range as recovery emerged
  • 2023-2024: Stabilized reflecting new rate regime

Risk Premium Drivers

  • Tenant credit ratings: A-rated vs B-rated spreads ~100+ bps
  • Lease length: 20-year leases trade tighter than 10-year
  • CPI escalators: Inflation protection reduces risk premium
  • Covenant strength: Strict rent-only leases trade tighter
  • Market conditions: Recession fears cause spread expansion

Investment Implications

  • Tight spreads = Strong demand, limited risk premiums available
  • Normal spreads = Balanced supply/demand with attractive yields
  • Wide spreads = Opportunity to lock in higher returns
  • Spread compression = Capital appreciation potential for existing holdings
  • Spread widening = Risk of cap rate expansion and valuation pressure

Forward Outlook

  • If spreads compress: NNN valuations rise, cap rates fall
  • If spreads widen: Risk-on sentiment deteriorates, refi challenges emerge
  • If spreads stable: Market in equilibrium, selective buyer activity
  • Monitor Treasury yields alongside spreads for true NNN direction
  • Credit quality divergence likely to persist in volatility

Spread Compression Timeline

2018
Tight Spreads Begin
Fed rate hikes compress spreads to 250-300 bps. Low risk premiums as economy remains strong. QE era lingering effects keep yields compressed.
2020
Spread Widening Shock
Pandemic uncertainty causes spreads to widen 500+ bps. Flight to quality accelerates. Treasury yields crash; cap rates lag upside. Spread reaches widest level in years.
2021
Compression Returns
Recovery enthusiasm drives spreads back to 300-350 bps. Fed near-zero rates resumed. Investors chase yield in CRE. Industrial properties especially tight.
2022
Rapid Widening
Fed aggressively raises rates. Cap rates expand faster than Treasury yields. Spreads widen to 350-400+ bps by Q4. Financing becomes expensive. Deal velocity slows.
2023-2024
Stabilization
Fed pauses then cuts rates. Spreads moderate to 300-350 bps range. Market reprices risk. Credit quality becomes critical. Best-in-class properties trade tighter spreads.
2026
Current Environment
Calculated spread is 155 bps (Boulder Group Q2 2026 cap rate minus the stored 10-year at 5.27%).

Key Takeaways

Spreads = Risk Premium
The CRE spread is your compensation for taking on credit, liquidity, and operational risk beyond Treasury yields. Monitor spreads as a key valuation metric.
Compression Signals Confidence
When spreads compress, investors are comfortable with lower risk premiums. This typically coincides with capital inflows and rising valuations across the board.
Widening Indicates Caution
Spread widening reflects increased risk aversion. This may create entry opportunities for contrarian investors but signals near-term headwinds.
Quality Divergence Persists
A-rated tenant NNN spreads rarely widen as much as weaker operators. Flight-to-quality remains a constant theme across credit cycles.

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Related Resources

Interest RatesCap Rate TrendsInflation ImpactYield BenchmarksCap Rate & Valuation GuideMarket Reports

DISCLAIMER: CRE spread analysis on this page is for informational purposes only and reflects market data and interpretation. Actual spreads vary by specific property, tenant, location, and lease structure. Spread movements are influenced by numerous factors including Fed policy, credit conditions, supply/demand dynamics, and macroeconomic conditions. Past spread patterns do not guarantee future results. This content should not be construed as investment advice. All NNN investments carry risk. Consult with real estate investment and financial professionals before making investment decisions.

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