Commercial Property Cap Rate Calculator
Calculate the capitalization rate (Cap Rate) for a commercial property investment to evaluate its potential return and value.
Formulas Used
Step 1 — Effective Gross Income (EGI):
EGI = Gross Rental Income × (1 − Vacancy Rate)
Step 2 — Net Operating Income (NOI):
NOI = EGI − Annual Operating Expenses
Step 3 — Capitalization Rate:
Cap Rate (%) = (NOI ÷ Property Value) × 100
Gross Rent Multiplier (GRM):
GRM = Property Value ÷ Gross Rental Income
Operating Expense Ratio (OER):
OER (%) = (Operating Expenses ÷ EGI) × 100
Implied Property Value:
Implied Value = NOI ÷ Benchmark Cap Rate
Assumptions & References
- Operating expenses include property taxes, insurance, maintenance, property management fees, utilities, and repairs — but exclude mortgage payments, depreciation, and income taxes (NOI is pre-financing).
- Vacancy rate typically ranges from 3%–10% for stabilized commercial properties; higher rates apply to value-add or transitional assets.
- Cap rates vary significantly by asset class and market: retail 5%–8%, office 5%–8%, industrial 4%–7%, multifamily 4%–6% (CBRE, JLL, 2024).
- A higher cap rate implies higher return but may also indicate higher risk or a less desirable location.
- The implied value comparison uses 6%, 7%, and 8% as common market benchmarks for general commercial property.
- GRM benchmarks: a GRM of 8–12x is typical for commercial properties; lower GRM may indicate better value.
- This calculator does not account for financing (leverage), capital expenditures (CapEx), or tax implications.
- Reference: Appraisal Institute — The Appraisal of Real Estate, 15th Edition; CBRE Cap Rate Survey 2024.