Cap Rate Trends of Major US Cities

This Page Was Last Updated: August 23, 2022
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Cap Rate Trends Comparison

CityPercentage Change
San Diego
Las Vegas
Based on data from the Freddie Mac Multifamily Apartment Investment Index (AIMI®). Benchmark of 100 set in 2000.

Cap Rate Trends for New York vs Los Angeles

Change in New York's Cap Rate Index
(relative to a baseline set in 2000)
Change in Los Angeles's Cap Rate Index
(relative to a baseline set in 2000)
**Based on data from the Freddie Mac Multifamily Apartment Investment Index (AIMI®). Percentage change from a baseline set in 2000.

Highest 10-Year Cap Rate Increase

Chicago ranked as the top city for 10-year cap rate increases. It was second place for one and 5-year cap rate increases, following New York. Over ten years, Chicago saw the benchmark multifamily cap rates increase by 18.51%. This contrasts with the national average, which decreased by 7.62%. This implies that multifamily units in Chicago became more profitable per the fair market value of the building. Meanwhile, the cap rate index increased 21.38% over five years and 11.12% over one year. The astonishing increase can be traced back to Q1-2017.

Flatlining Chicago Price Growth

The Chicago multifamily price index increased 11.45% from Q1-2017 to Q4-2021. This flatlining growth positively affects increases in the cap rate index. This is because the market value of real estate is the denominator of the cap rate formula. This suggests that if property values increase more significantly than NOI, there will be slower cap rate growth. The slowing price growth of Chicago multifamily properties is part of the dramatic cap rate increase.

Decreasing Mortgage Rates

The real estate industry widely understands the effect of decreasing mortgage rates on cap rates. A lower borrowing cost decreases the income needed to break even on a property.

The average 30-year fixed-rate mortgage in Chicago decreased from 3.94% in Q1-2017 to 2.95% in Q4-2021. This significant drop helped landlords become more profitable and increased the city's ranking for cap rate increases.

What's important to note is that this drop in mortgage rates was not unique to Chicago. It was a national trend. So while decreasing mortgage rates may have impacted cap rate increases, it's likely not the only or most significant factor.

NOI Increases

Chicago's NOI increased 25.75% from Q1-2017 to Q4-2021. This increase can be attributed to decreased operating expenses and vacancy/credit losses. As mentioned earlier, the decrease in mortgage rates was also a significant cost reduction for landlords.

To put these NOI changes into perspective, covid rent freezes prevented increases to monthly rent on Chicago. This suggests that most of the NOI changes were influenced by a cost reduction.

Lowest 10-Year Cap Rate Increase

Las Vegas has consistently seen one of the most significant cap rate decreases across the United States. Over ten years, the city has seen a 31.46% reduction compared to the national average of -7.62%. Over five years, the cap rate has decreased by 16.77%. However, Las Vegas also ranked second for a 1-year decrease, dropping 8.71%. The decrease is primarily due to ballooning property price increases.

258.6% Increase in Housing Price Index (10-Year)

As previously mentioned, increasing property values have an inverse effect on cap rates. Las Vegas' dramatic cap rate decline can be traced back to when property prices bottomed around ten years ago. Afterward, the multifamily price index increased 212.02% between Q4-2011 to Q4-2021.

If property values increase faster than NOI, cap rates decrease. This is because price increases are the denominator of the cap rate equation. So an increase in property prices will result in a decrease in the overall cap rate. Las Vegas' significant price increase is likely due to the city's intense job and population growth.

Cap Rate Comparison for Top US Cities

Population(2020 est.)
5-Year Cap Rate Change
Atlanta, GA512,550-20.57%
Charlotte, NC900,350-22.53%
Chicago, IL2,677,6436.46%
Dallas, TX1,343,266-16.18%
Denver, CO735,538-22.96%
Washington, DC712,816-18.48%
Houston, TX2,316,120-8.15%
Jacksonville, FL920,570-26.65%
Las Vegas, NV662,368-26.11%
Los Angeles, CA3,970,2190.42%
Miami, FL471,525-6.82%
Minneapolis, MN433,111-9.17%
Nashville, TN671,295-21.82%
New York, NY8,253,21322.21%
Oakland, CA424,891-13.05%
Orlando, FL289,457-20.27%
Philadelphia, PA1,578,4877.17%
Phoenix, AZ1,708,127-29.26%
Portland, OR656,751-8.84%
Raleigh, NC474,414-18.08%
San Diego, CA1,422,420-13.3%
San Francisco, CA866,606-15.57%
Seattle, WA769,714-7.41%
Tampa, FL407,599-22.34%
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