Free Commercial Cap Rate Calculator
Calculate the capitalization rate for commercial properties including office, retail, industrial, and multifamily, and determine implied property value at different cap rates.
Current Cap Rate
8.00%
Current Cap Rate vs Target Cap Rate for Comparison
Commercial Cap Rate Analysis
The cap rate is the primary valuation metric for commercial real estate. It represents the unlevered yield an investor receives based on the property's income production.
Formula
Cap Rate = Net Operating Income / Property Value x 100
Implied Value = NOI / Cap Rate
Cap Rate Ranges by Property Type
Cap Rate Compression
When cap rates compress (decrease), property values increase for the same NOI. This happened broadly from 2010-2022 due to low interest rates. Rising interest rates generally cause cap rates to expand.
Example Calculation
A commercial property with $120,000 NOI listed at $1,500,000, compared against a 7% target cap rate.
- 01Current cap rate: $120,000 / $1,500,000 = 8.00%
- 02Implied value at 7% cap: $120,000 / 0.07 = $1,714,286
- 03Value difference: $1,714,286 - $1,500,000 = $214,286
- 04Price per $1 of NOI: $1,500,000 / $120,000 = $12.50
- 05NOI needed for 7% cap at current price: $1,500,000 x 7% = $105,000