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SitusAMC Real Estate Report 2Q 2025

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Problem

Reports current (2Q 2025) RERC institutional investment criteria for CRE property types, providing the same survey-based data series used as the primary data source in Duca-Ling (2015) for modeling CRE cap rates and risk premia.

Key idea

The RERC survey collects required pre-tax yield rates (IRR), going-in cap rates, terminal cap rates, rental growth expectations, and expense growth expectations from institutional CRE investors across all major property types and regions. This is the survey series that provides the theoretically clean measures of required returns and expected rent growth that are difficult to observe from transaction data alone.

Method

Quarterly survey of institutional CRE investors (pension funds, endowments, life insurance companies, REITs, investment banks). Data reported by property type (CBD Office, Suburban Office, Industrial Warehouse/R&D/Flex, Retail Regional Mall/Power Center/Neighborhood, Apartment, Student Housing, Hotel) and by region (West, Midwest, South, East) with first-tier and second-tier breakdowns.

Results

National weighted averages (2Q 2025):

  • Pre-tax yield rate (IRR): 8.1% all types (range: 7.0% apartments to 9.5% hotel)
  • Going-in cap rate: 6.6% all types (range: 5.2% apartments to 7.8% hotel)
  • Terminal cap rate: 7.1% all types (range: 5.8% apartments to 8.3% hotel)
  • Rental growth: 2.5% all types (range: 1.4% CBD office to 3.3% hotel)
  • Expense growth: 3.2% all types

Spreads over benchmarks (2Q 2025):

  • Real estate yield over 10-year Treasury: 3.7 pp (down from 6.0 pp in 2Q 2021)
  • Real estate yield over Moody’s Baa: 1.9 pp (down from 4.0 pp in 2Q 2021)

Notable trends:

  • Cap rates largely stable quarter-over-quarter (most changes 0-10 bp)
  • Investment conditions improving across all types (scale 1-10): industrial warehouse highest at 5.3, CBD office lowest at 2.9
  • Apartments valued primarily by direct capitalization (88% after reserves); most other types use DCF models
  • Regional variation: East has highest required returns; West/South lowest apartment cap rates

Limitations

  • Survey-based data reflecting expectations, not realized outcomes.
  • Proprietary and copyrighted; limited public availability.
  • Respondent pool may not be representative of all CRE market participants.
  • Single point in time; longitudinal analysis requires subscription access.

Open questions

  • The current 3.7 pp spread of CRE yields over Treasuries is much narrower than the 6.0 pp in 2Q 2021. Does this compression reflect declining risk premia (per the Duca-Ling framework) or compression of the capital availability premium?
  • Do the regional cap rate differentials (East highest, West/South lowest for apartments) align with the supply-constraint-driven predictability patterns found by Plazzi-Torous-Valkanov (2010)?

My take

Valuable as a current snapshot of the RERC survey data that Duca-Ling (2015) use as their primary source. The 2Q 2025 data show that CRE risk premia (yield spread over Treasuries) have compressed from 6.0 pp (2021) to 3.7 pp (2025), which in the Duca-Ling framework would be driven partly by declining general risk premia (Baa-Treasury spread compression) and partly by capital availability recovery. For the CRE project, this provides a contemporary calibration reference: the current apartment cap rate of 5.2% and office cap rate of 7.5% can be compared to model-implied values.

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