Cap Rate

Also known as the Capitalization Rate, is used to estimate the investor’s potential return on their investment in a specific area for a given property class at a given time. 

Formula: Cap Rate (%) = NOI / Property Asset Value

The Cap Rate can be used to calculate the approximate valuation of a commercial real estate property by using the income approach.

Formula: Asset Valuation = NOI / Cap Rate

« Back to Glossary Index