Cap Rates May Be Stabilizing — But Risk Is Shifting, Not Disappearing

As the market closes out Q4 2025 and looks ahead to Q1 2026, a familiar signal is beginning to re-emerge: stability.

CBRE’s latest U.S. Cap Rate Survey indicates that cap rates across most property types may have peaked, with early signs of stabilization following nearly two years of repricing. In a market shaped by interest rate volatility, policy uncertainty, and subdued transaction volume, that signal carries weight.

For U.S. construction and commercial real estate lenders, this moment matters because risk is increasingly reflected in performance rather than pricing. It shows up in how efficiently capital is deployed, monitored, and converted into income during construction and early stabilization.

Cap rate stabilization does not eliminate risk.

It shifts where risk is expressed.

From Pricing Risk to Performance Risk

Over the past two years, risk in U.S. commercial real estate was expressed most visibly through pricing. Values reset, spreads widened, and transaction activity slowed as investors waited for clearer signals.

Entering 2026, price movement has been steadier. The focus shifts to whether projected returns are delivered after capital is deployed.

Green Street’s Commercial Property Price Index® points in that direction: it shows modest annual gains through 2025 with small month-to-month moves, and commentary that much of the price appreciation has come from higher net operating income while cap rates have changed little. 

For lenders, this reframes where performance risk now resides.

CBRE’s H1 2025 U.S. Cap Rate Survey similarly finds the all-property cap rate estimate declined slightly (9 bps) despite a volatile macro backdrop and notes this may indicate cap rates are past their peak and entering a period of yield compression. 

Cap rates remain a useful tool for understanding how the market values long-term income streams. They support asset comparison and sector benchmarking. They do not describe how efficiently capital moves from commitment to completion, particularly during construction and early stabilization.

Differences in timing and oversight are often where realized outcomes separate, even among assets underwritten on similar pricing assumptions.

Why Identical Cap Rates Produce Different Outcomes

As underwriting assumptions normalize, differences in execution become more consequential.

Two projects can underwrite to the same cap rate and still perform very differently based on factors that never appear in a cap rate calculation:

• The speed and consistency of draw processing
• Whether inspections reflect actual progress or lag conditions on site
• How early cost pressure is identified and addressed
• How uniformly controls are applied across a growing portfolio

None of these variables change a cap rate.

Each one directly influences loan duration, interest carry, borrower performance, and loss exposure through loan administration, monitoring and controls.

As pricing volatility continues to cool, these operational differences play a larger role in determining realized outcomes.

Why This Shift Matters Going Into 2026

Looking ahead to Q1 2026, U.S. CRE remains more constrained than it was pre-2022.

Rates are still high relative to the prior decade, and carry is harder to ignore. Construction timelines remain stretched, with labor availability and materials costs adding uncertainty. Regulators continue to emphasize CRE monitoring, concentration risk management, and portfolio-level governance.

Under these conditions, small delays compound:

• Draw delays extend interest carry
• Late detection increases loss severity
• Manual exceptions reduce consistency at scale

With tighter spreads, operational friction shows up directly in financial performance.

Cap Rates Price Assets. Lenders Manage Outcomes.

Cap rates answer an important question: What is this asset worth in today’s market?

Lenders, however, are accountable for a different set of questions:

• How fast does capital move once committed?
• Where does risk emerge during construction, not after?
• Can issues be identified early enough to intervene?

These are operational questions—governed by controls, monitoring cadence, and portfolio visibility. U.S. banking regulators have long treated those elements as core to CRE concentration risk management.

As pricing stabilizes, operational discipline becomes a clearer separator between portfolios that track to underwriting expectations and portfolios that drift.

The Shift to Watch in 2026

If cap rates are entering a period of relative stability, the next phase of this cycle will not be defined by sharper pricing insight. It will be defined by execution.

As valuation volatility recedes, the risks that matter most move inside the lending process itself. Timing, visibility, and consistency become decisive. The speed at which capital moves, the point at which risk is identified, and the discipline applied across portfolios increasingly determine whether modeled returns are realized or quietly eroded.

Cap rates remain an essential signal of how the market prices assets. But for lenders, outcomes are shaped elsewhere—by how construction is monitored, how deviations surface, and how consistently controls hold as portfolios grow more complex.

In a stabilizing market, pricing tells you where the market stands. Execution determines where a portfolio ultimately ends up.

This is where execution infrastructure matters. When draw workflows, inspections, and budget signals live in disconnected systems, friction compounds invisibly. When they’re unified, risk surfaces earlier, capital moves faster, and oversight scales without sacrificing control. Platforms like Built operate in this layer—connecting draw workflows, inspections, and budget visibility so execution risk surfaces early and oversight scales with the portfolio.

To see how execution infrastructure can reduce friction and surface risk earlier across construction lending portfolios, connect with the Built team.