Why do cap rates compress when rates fall?

Lower discount rates increase present value of future income streams. Investors accept lower cap rates when financing costs fall, as leveraged returns remain attractive.

What is the historical cap rate spread to Treasuries?

Historically 150–300bps above 10-year Treasury. In low-rate era (2010–2021), spreads compressed to 100–150bps. Rising rates have pushed spreads back toward historical norms.

How to protect against cap rate expansion?

Buy at below-market rents with upside, use fixed-rate debt, target shorter holds (3–5 years), and add value to grow NOI faster than cap rates expand.

Cap Rate Compression from Low Rates Calculator

Model cap rate compression as interest rates fall and how rising rates create cap rate expansion risk. Analyze spread between cap rate and 10-year Treasury to measure risk premium.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Model cap rate compression as interest rates fall and how rising rates create cap rate expansion risk. Analyze spread between cap rate and 10-year Treasury to measure risk premium. Use the cap rate compression result to inform your calculation.

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Cap Rate Compression from Low Rates Calculator

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Frequently Asked Questions

Why do cap rates compress when rates fall?

What is the historical cap rate spread to Treasuries?

How to protect against cap rate expansion?