Average CRE Interest Rate at 6.57%; Cap Rate at 6.34%

The CRED iQ research team focused on the underwriting of the latest market transactions. CRED iQ analyzed underwriting metrics for $31.5 billion in new issuances from the third quarter alone. We reviewed 576 loans across 51 deals. Interest rate and cap rate analysis by property type is highlighted below.  

Year-to-date new issuances totaled $123.8 billion, broken down as follows: 

Conduit: $20.8 billion

CRE CLO: $19.4 billion

Freddie Mac: $22 billion

Single-borrower, large loan: $61.5 billion 

Third-quarter volumes were down across the board compared to the second quarter. Deals, balances and loans saw reductions of 9 percent, 18 percent and 50 percent, respectively, in the third quarter versus the second.  

Deeper dive — recent conduit activity

According to the latest CRED iQ data, the grand total average interest rate across all commercial real estate property types stands at 6.57 percent, while the average cap rate registers at 6.34 percent. This narrow spread of just 23 basis points underscores a compressed yield environment, where borrowing costs remain elevated relative to capitalization rates. The overall figures reflect a market still adjusting to higher-for-longer interest rates, with debt service coverage potentially strained in sectors where cap rates fail to outpace financing expenses significantly.

Diving into property-type specifics, hospitality leads with the highest average interest rate at 7.11 percent and the widest cap rate at 8.17 percent, yielding a healthy 106-basis-point buffer that supports robust valuation and refinancing flexibility in this recovery-sensitive sector. 

In contrast, industrial properties exhibit the tightest spread, with an average interest rate of 6.72 percent against a 6.37 percent cap rate — only 35 basis points — highlighting vulnerability to further rate hikes amid e-commerce-driven demand but thinner margins for error. 

Multifamily follows closely behind the grand average, at 6.46 percent interest and 5.69 percent cap rate, indicating steady but unremarkable performance in a segment buoyed by rental demand yet pressured by construction costs and affordability challenges.

Notable outliers include self-storage, boasting the lowest average interest rate at 6.37 percent alongside a 6 percent cap rate, which may signal favorable investor appetite for this resilient, low-maintenance asset class. Office properties, meanwhile, show a 6.71 percent interest rate and 7.38 percent cap rate, offering a 67-basis-point spread that provides some cushion despite ongoing hybrid-work headwinds. 

Investors monitoring these metrics should watch for cap rate expansion in underperforming sectors like retail (6.68 percent interest rate, 6.44 percent cap rate) to restore equilibrium, as any widening could signal opportunistic buying windows in a maturing cycle.

Mike Haas is the founder and CEO of CRED iQ.