National strip center cap rates sit less than three points over the 10-year Treasury, the same thin cushion as 2007 and late 2022. The rate-bet test shows what a deal is really betting on, and why small Wisconsin centers often pass it.
Today's strip center cap rates sit less than three points above the 10-year Treasury. The last two times the gap was that thin were 2007 and late 2022, and both times cap rates rose afterward. A buyer paying a national-average cap rate today is making a bet that interest rates fall, whether or not the underwriting says so.
The number that matters is the gap, not the cap rate
A cap rate on its own tells you very little. A 7% cap rate was expensive when the 10-year Treasury paid 5% and cheap when it paid 1.5%. What an investor is actually paid for owning a strip center, instead of a government bond, is the difference between the two: the spread.
That spread has to cover everything the bond does not carry. Vacancy. Roof and parking lot replacements. Tenants who fail. Leasing commissions. The fact that you cannot sell a 24,000 square foot center in an afternoon. When the spread is wide, the buyer is being paid for those risks. When it is thin, the buyer is absorbing them for free and hoping the market stays generous.
There is no single public series of small strip center cap rates going back twenty years, so the history below stitches together published surveys, each named. They measure slightly different things, mostly institutional-quality centers. The pattern is what matters, and it is consistent across all of them. The Treasury figures are quarterly averages of the 10-year constant maturity yield from Federal Reserve data.
Three regimes in twenty years
The thin years, 2007 to early 2008. The PwC (then Korpacz) Real Estate Investor Survey put the average strip shopping center cap rate at 7.35% in the second quarter of 2007, against a 10-year yield near 4.85%. A spread of 2.50 points. Real Estate Research Corporation (RERC) had neighborhood retail at 6.50% in the first quarter of 2008, about 2.84 points over Treasuries.
The blowout, 2009 to 2011. RERC's neighborhood retail cap rate rose to 8.10% in early 2009 and 8.30% in early 2010, while Treasuries fell. The spread hit 5.36 points in early 2009 and was still 4.58 a year later. At the same NOI, the move from 6.50% to 8.30% alone takes 21.7% off a center's value.
The wide decade, 2012 to 2021. Cap rates came down, but Treasuries came down faster. PwC's strip center average was 6.91% in 2013, 6.81% in 2015 and 6.19% in 2017. CBRE's survey put neighborhood and community centers at 7.47% in the second half of 2019, when the 10-year averaged 1.79%. Real Capital Analytics had retail at 6.4% at the end of 2021 against a 10-year of about 1.5%. Across the 2013 to 2019 readings above, the spread averaged about 4.35 points.
Then 2022 happened. The 10-year went from about 1.5% to nearly 4% in a year, and cap rates barely moved at first. MSCI Real Assets reported retail cap rates averaging 6.3% in November 2022, when the 10-year averaged 3.89%. A spread of 2.41 points, thinner than 2007.
- 2007 spread
- 2.50 pts
- 2010 spread
- 4.58 pts
- 2013 to 2019 average
- 4.35 pts
- Today
- 2.62 pts
Where the spread sits now
Marcus & Millichap puts multi-tenant retail cap rates at about 7.3% over the twelve months through March 2026. Against the 10-year's average over those same twelve months, 4.23%, that is a spread of about 3.1 points. Against the August 2026 yield of 4.68%, it is 2.62 points.
So cap rates have risen from the 2022 lows, and the spread has recovered some ground, but it sits much closer to the 2007 and 2022 thin points than to the decade in between.
Two honest caveats. First, the wide spreads of 2012 to 2021 were partly an artifact of Treasury yields held unusually low; nobody should expect them back just because they happened. Second, cap rates are sticky. They follow Treasuries slowly and incompletely, which is exactly why the spread swings so much. Neither caveat changes the practical point. A thin spread means the buyer is not being paid much for the risks that make a strip center different from a bond.
The rate-bet test
Here is a test any buyer can run in two minutes. Take the going-in cap rate on the deal. Subtract today's 10-year Treasury yield. Then read the result against history:
- Under 3 points: you are pricing the center the way the market did in 2007 and late 2022. Unless NOI is going up, the deal only works if rates fall or cap rates stay put. You are making a rate bet.
- 3 to 4 points: a fair price for a stable, well-leased center, closer to the long middle of the record.
- Over 4 points: you are being paid for the risk, the way buyers were for most of 2010 to 2021.
Then ask the question that turns the test into a number: what 10-year yield would make this cap rate a 4-point spread? That yield is the bet you are making.
Take a 24,000 square foot center producing $420,000 of NOI, offered at the national average 7.3% cap rate, or $5,753,425.
- Against a 4.68% 10-year, the spread is 2.62 points.
- For 7.3% to be a 4-point spread, the 10-year would have to fall to 3.3%. For a 3-point spread, 4.3%.
- If rates stay where they are and the spread widens to 3 points, the cap rate goes to 7.68% and the center is worth $5,468,750: $284,675 less.
- If the spread returns to 4 points with rates flat, the cap rate goes to 8.68% and the value is $4,838,710: $914,715 less, a 15.9% loss on the same income.
None of that is a forecast. It is the size of the bet, stated in dollars, which is more than most offering memorandums will tell you.
What it means in Southeastern Wisconsin
The national figures above are mostly institutional centers in large markets. Small centers in secondary markets usually trade at higher cap rates, and that is good news for a buyer who runs the test. Matthews reported unanchored strip center cap rates averaging about 8% in the Midwest in the second quarter of 2025, against a 10-year that averaged 4.36% that quarter. A spread of about 3.6 points, comfortably inside the fair band.
That is the practical edge of buying a 20,000 to 40,000 square foot center around Milwaukee rather than a trophy asset: the spread is wider because fewer buyers compete for it. The test tells you whether a particular deal kept that edge or gave it away. A Waukesha County strip priced at 6.75% because it is "fully leased" is a 2.07 point spread against today's Treasury, a thinner cushion than the national market had at the 2007 peak.
For owners, the test runs in reverse. If you are thinking about selling, a thin national spread means buyers are paying for money that is still relatively expensive. If spreads widen, the value you are carrying in your head goes with them. That is worth knowing before you set an asking price, and it is the conversation behind our exit options work.
Run it on the next offering
- Find the going-in cap rate on in-place NOI, not the broker's pro forma.
- Look up today's 10-year Treasury yield (the Federal Reserve publishes it daily).
- Subtract. Under 3 points is a rate bet; 3 to 4 is fair; over 4 is paid for risk.
- Work out the 10-year yield that would make the deal a 4-point spread. Decide whether you believe it.
- Price the downside: value at your cap rate plus one point, at the same NOI. If you cannot carry that, the price is wrong.
The market will tell you what cap rates are. It will not tell you whether you are being paid for the risk. The spread will.