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).
- Reference: Appraisal Institute — The Appraisal of Real Estate, 15th Edition; CBRE Cap Rate Survey 2024.