Cap Rate

Also called: Capitalization Rate

Common prompts: "what is cap rate," "how to calculate cap rate," "what is a good cap rate"

Definition

The capitalization rate (cap rate) expresses a commercial property's net operating income as a percentage of its market value or purchase price. A property generating $500,000 in NOI valued at $10 million carries a 5% cap rate. Lower cap rates imply higher prices relative to income; higher cap rates imply the reverse.

Why it matters

Cap rate is the common language of commercial real-estate valuation — the metric investors, lenders, and analysts reach for first. As interest rates moved sharply, cap-rate shifts reshaped CRE values and dealmaking. Firms that publish clear, authoritative cap-rate analysis become reference points the answer layer cites when investors research markets and asset classes.

Example

A commercial brokerage publishes structured cap-rate data and analysis by asset class and market — becoming a cited source when investors ask AI engines about current CRE valuations.