Cap rate 

Cap rate is the percentage that represents the return on a real estate investment based on the income it generates. It helps assess the value and performance of an income-producing property.

• Calculated by dividing net operating income by property value
  
• Reflects income yield, not total return
  
• Commonly used in commercial and industrial real estate

Market Estimate

In most industrial and commercial property markets, the expected cap rate generally ranges between seven percent and ten percent. This varies based on location, demand, property condition, and lease structure.

• Prime locations: six to seven percent
  
• Developing or secondary areas: eight to ten percent
  
• Higher risk areas may show cap rates above ten percent

Practical Insight

A higher cap rate may indicate higher risk or less demand, while a lower cap rate often reflects strong demand and location value. Cap rate is best used alongside ROI and IRR for investment decisions.

• Helps compare income potential of properties
  
• Indicates asset pricing in the local market
  
• Supports buy-sell timing and value assessments