Free · no signup
Commercial Cap Rate Calculator
A commercial building's net operating income does not come from a monthly rent figure. It comes from rentable area at a dollars-per-square-foot-per-year base rent, minus vacancy and credit loss, plus the operating expenses the lease bills back to tenants. Change the lease structure and the same rent roll produces a materially different NOI — which is the one question a residential cap rate calculator never asks.
Educational calculators — always consult a licensed professional before making financial decisions.
Your building
Steers the advice and decides whether a benchmark can be shown beside the result. It moves no figure in the arithmetic.
The default. Usually single-tenant NNN, low operating cost per square foot, and most of that cost recovered from the tenant.
The contract or asking price for the building, unlevered. It is the cap rate's denominator and nothing else in the model touches it.
Rentable (not usable) square feet from the rent roll, and base rent per square foot per YEAR — multiply a monthly figure by twelve first, and leave reimbursements out.
Rentable square feet, not usable — that is what rent is billed on.
ANNUAL rent per square foot — not monthly, and not the whole building.
Gross potential rent $380,000 a year
The lease decides how much of the operating load comes back from tenants. Enter taxes, insurance, CAM, utilities and repairs per SF per year; management and reserves are their own lines below.
This decides who pays the operating expenses — the biggest fork on the page.
Tenant pays taxes, insurance and CAM. 95% of operating expenses recovered — the remainder is structure, roof and the landlord's own overhead (ESTIMATED planning convention, not a published figure).
Taxes, insurance, CAM, utilities and repairs. Exclude management and reserves — they are separate lines below.
Operating expenses $120,000 · recovered +$108,300
Empty space and unpaid rent are separate lines, and vacancy also shrinks what can be billed back. The management and reserve defaults are ESTIMATED planning conventions — replace them with your agreement and capital plan.
Share of rentable area with nobody in it. Also reduces what you can bill back.
Tenants who are in the space and do not pay. A different thing from vacancy.
ESTIMATED default — a planning convention, not a published figure.
ESTIMATED default — a planning convention, not a published figure.
Net operating income $325,535
Commercial Cap Rate
7.75%
NOI $325,535 ÷ price $4,200,000
- Price / SF
- $105.00
- NOI / SF
- $8.14
- Expense ratio
- 30.1%
- Occupied area
- 38,000 SF
Industrial — how this class is usually quoted
Industrial is usually single-tenant NNN in $/SF/yr, which is why it is this page's default. The low operating-expense load per square foot is real, and most of it is recovered.
No benchmark shown. No cap-rate benchmark is published on this page for office, retail or industrial. The sector tables in CBRE's H2 2025 US Cap Rate Survey sit inside a gated PDF — the public summary page carries no numbers — and a broker-blog restatement of them is not a source we will publish against. Compare your result to actual sale comps in the same submarket instead.
Cap rate is unlevered by design: this page never deducts debt service, income tax, depreciation, leasing commissions or tenant improvements. The management-fee and replacement-reserve defaults are planning conventions labelled ESTIMATED, not published figures. Estimate only — confirm against sale comps in the same submarket and consult a licensed professional before transacting.
Your Saved Scenarios
No saved scenarios yet
What you'll need
- Purchase or asking price
- Rentable square feet (not usable)
- Base rent in $/SF per YEAR
- The lease structure — NNN, modified gross, or full service
- Operating expenses in $/SF per year
What you'll get
- Unlevered cap rate — NOI ÷ price, never clamped — negative if the building loses money
- Full NOI build-up — Nine lines from gross potential rent down to NOI
- Expense reimbursements — Recovered on occupied space only
- Expense ratio and NOI per SF — The two numbers a broker's pro-forma tends to omit
Why commercial cap rate is a different calculation
The definition is identical — cap rate = net operating income ÷ purchase price, unlevered, before any mortgage. What changes is everything that goes into the NOI. Commercial rent is quoted per square foot per year, not per month. Physical vacancy and credit loss are tracked separately, because an empty suite and a tenant who stops paying are different events with different remedies. A management fee is struck as a percentage of collected income rather than bundled into a rule of thumb. Replacement reserves come out above the NOI line. And, decisively, the lease structure determines how much of the operating expense load is billed back to tenants.
The reimbursement line is the whole difference. Under a triple-net lease, taxes, insurance and common-area maintenance are the tenant's responsibility: the money leaves the landlord's account and comes back as recovery income. This calculator models that at 95% recovered — not 100%, because structure, roof and the landlord's own overhead stay put — against 50% for a modified-gross lease and 0% for full-service gross, where nothing comes back at all. Those two interior figures are planning conventions labelled as estimated rather than published market data; the full-service-gross zero is a definition. One detail catches out most spreadsheets: recoveries are billable only on occupied space. A vacant suite has nobody to invoice, so the landlord absorbs that share of the recoverable expense. Vacancy costs a net-leased owner twice, and this page multiplies reimbursements by the occupied share for exactly that reason.
Worked example: 40,000 SF industrial on a NNN lease
This is the calculator's default state, so you can check every figure without touching a control. A 40,000 SF industrial building leases at $9.50/SF/yr and is priced at $4,200,000. Gross potential rent is 40,000 × $9.50 = $380,000. A 5% vacancy allowance takes $19,000 and a 1% credit loss takes $3,800. Operating expenses are 40,000 × $3.00 = $120,000, of which the landlord bills back $120,000 × 95% × 95% = $108,300 — 95% of the load, on 95% of the area. Effective gross income is therefore $380,000 − $19,000 − $3,800 + $108,300 = $465,500. Subtract the $120,000 expense load, a 3% management fee of $13,965, and $6,000 of reserves at $0.15/SF, and NOI is $325,535. Divide by the $4.2m price: 7.75%. The expense ratio is $139,965 ÷ $465,500 = 30.1%, and NOI per square foot is $8.14.
Now run the same building through the residential cap rate calculator. $380,000 a year is $31,667 a month; the 50% rule puts NOI at $190,000; the cap rate is 4.52% on the same $4.2m. Neither number is arithmetically wrong. The residential model is answering a question about a house, and most of the 3.23-point gap is the reimbursement it has no line for.
Worked example (edge case): 50,000 SF office, gross lease, 35% vacant
A 50,000 SF office building on full-service-gross leases at $18.00/SF/yr, priced at $6,000,000, sitting 35% vacant with a 4% credit loss on what remains. Gross potential rent is $900,000; vacancy takes $315,000 and credit loss $36,000, leaving $549,000 of effective gross income — because under a gross lease the reimbursement line is $0. Operating expenses are 50,000 × $12.50 = $625,000 and they do not shrink when the building empties out. Add a 4% management fee of $21,960 and $17,500 of reserves and total expenses are $664,460 against $549,000 of income: an expense ratio of 121.0% and NOI of −$115,460. The cap rate is −1.92%, and this calculator reports it rather than clamping it to zero. A negative cap rate is the single most useful thing it can tell a buyer looking at a half-empty gross-leased office building.
Cap rate by asset class — and what this page refuses to publish
The asset class you pick changes the advice and the benchmark, not the arithmetic. Office is usually quoted full-service or modified gross, so the landlord carries the operating load. Retail is usually NNN, frequently with percentage rent on top of base rent — which this page deliberately does not model, because it turns on a tenant's sales and a breakpoint no two leases share. Industrial is usually single-tenant NNN with a low expense load per square foot. Multifamily is conventionally underwritten per unit on gross leases, so convert your per-unit figures to a per-square-foot basis before entering them here.
For multifamily there is a verified national benchmark: 4.73%, the average core multifamily going-in cap rate, CBRE Q3 2025 (exit cap 4.95%) (CBRE). Treat even that as a sanity check rather than a valuation: it is a sentiment survey of stabilised institutional Class A assets fielded in early December 2025, and a value-add building in the same metro does not trade near it.
For office, retail and industrial, this page publishes no benchmark band at all. No cap-rate benchmark is published on this page for office, retail or industrial. The sector tables in CBRE's H2 2025 US Cap Rate Survey sit inside a gated PDF — the public summary page carries no numbers — and a broker-blog restatement of them is not a source we will publish against. Compare your result to actual sale comps in the same submarket instead.
What cap rate leaves out
Cap rate is unlevered by construction, so it says nothing about your actual return after debt. Once a deal clears this screen, size the loan against the NOI above with the DSCR calculator, check the equity return with cash-on-cash return, and run the full multi-year picture in the investment property cash-flow calculator. If you are rolling proceeds out of another asset, the 1031 exchange calculator covers the tax timing. Leasing commissions and tenant improvements are real money and belong in none of the NOI above — they are capital items, and on an office building mid-lease-up they can exceed a year of net income.
Frequently asked questions
How do you calculate a cap rate on a commercial property?
Cap rate is net operating income divided by purchase price, unlevered — the same definition as on a house. What differs is how the NOI is built. Start from gross potential rent, which on a commercial building is rentable square feet multiplied by a base rent quoted in dollars per square foot per YEAR. Subtract physical vacancy and credit loss, which are separate lines: vacancy is empty space, credit loss is a tenant in the space who does not pay. Then ADD expense reimbursements — the share of operating expenses the lease bills back to tenants — and that sum is effective gross income. From it subtract the full operating expense load, a management fee struck as a percentage of effective gross income, and replacement reserves. What is left is NOI. Divide by price. Nothing below the NOI line belongs in it: no mortgage payment, no income tax, no depreciation, no leasing commissions and no tenant improvements.
Why does a commercial cap rate differ from a residential one on the same building?
Because the residential model has no expense-reimbursement line, and on a net-leased building that line is most of the answer. Take a 40,000 square foot industrial box on a triple-net lease at $9.50 per square foot per year, priced at $4.2 million. The commercial model collects $380,000 of base rent, loses $19,000 to a 5% vacancy and $3,800 to 1% credit loss, spends $120,000 on operating expenses and bills $108,300 of that back to the tenant — recoveries are collected on occupied space only, so it is 95% of the expense load on 95% of the area. After a 3% management fee and $6,000 of reserves, NOI is $325,535 and the cap rate is 7.75%. Run the same building through a residential cap rate calculator and the annual rent becomes $31,667 a month, the 50% rule gives NOI of $190,000, and the cap rate is 4.52%. Neither is arithmetically wrong. The residential model is answering a question about a house, and the 3.23-point gap is mostly the reimbursement it cannot express.
What does a triple net (NNN) lease do to net operating income?
A triple-net lease makes the tenant responsible for property taxes, insurance and common-area maintenance, so the operating expenses still leave the landlord's account and then largely come back as recovery income. This calculator models that at 95% recovered — not 100%, because structure, roof and the landlord's own overhead stay with the landlord — against 50% for a modified-gross lease and 0% for a full-service-gross one, where the landlord pays everything and recovers nothing. Those interior figures are planning conventions labelled as estimated rather than market survey results; the full-service-gross zero is a definition. The detail most spreadsheets miss is that recoveries are billable only on OCCUPIED space. An empty suite has no tenant to invoice, so a vacant net-leased building loses the base rent AND absorbs that share of the recoverable expense. That is why vacancy hurts a NNN landlord twice, and why this page multiplies reimbursements by the occupied share.
What is a good cap rate for office, retail or industrial property?
This page will not tell you, and the refusal is deliberate. No cap-rate benchmark is published on this page for office, retail or industrial. The sector tables in CBRE's H2 2025 US Cap Rate Survey sit inside a gated PDF — the public summary page carries no numbers — and a broker-blog restatement of them is not a source we will publish against. Compare your result to actual sale comps in the same submarket instead. The one US commercial benchmark this site publishes is for multifamily: 4.73%, the average core multifamily going-in cap rate, CBRE Q3 2025 (exit cap 4.95%). Even that is a sanity check rather than a valuation — it is a sentiment survey of stabilised institutional Class A assets, fielded in early December 2025, and a value-add building in the same metro does not trade anywhere near it. For the other three classes, the honest comparison is recent sale comps in your own submarket, which your broker or an appraiser can pull and which will be a better guide than any national average would have been.
Should replacement reserves be deducted before the cap rate?
Institutional underwriting deducts them; a broker's marketing pro-forma very often does not. That single difference is a common reason a listed cap rate sits a quarter of a point or more above the one you calculate on the same building from the same rent roll. Replacement reserves are the annual set-aside for capital items that wear out on a schedule — roof, parking lot, HVAC units — and leaving them out does not make them not happen. This calculator deducts them above the NOI line by default, at an estimated $0.15 per square foot per year, and the field is editable: set it to zero if you want to reproduce a broker's figure, so long as you know that is what you are doing and you apply the same treatment to every comparable you are lining it up against. The same argument applies to the management fee, which belongs in NOI whether or not you self-manage, because an unlevered buyer would have to pay someone to run the building.
Can a cap rate be negative?
Yes, and this calculator reports it rather than clamping it to zero. A negative cap rate means net operating income is negative: the building costs more to run than it collects, before any mortgage. It is most common on a full-service-gross office building with high vacancy, because under a gross lease the operating load does not fall when the space empties out and there is no reimbursement to close the gap. A 50,000 square foot office building at $18 per square foot, 35% vacant with 4% credit loss and a $12.50 per square foot operating load, collects $549,000 of effective gross income against $664,460 of total expenses — an expense ratio of 121% and NOI of negative $115,460. Clamping that to zero would hide the single fact a buyer most needs to see.
Want to try different numbers?
Back to the calculator ↑Commercial Cap Rate Calculator is built and maintained by the RealCostIQ editorial team. Cost ranges and rates are checked against published industry data and contractor quotes, and revised when the underlying figures move. Read our data methodology or more about who builds this. Every calculation runs in your browser — no account, and none of your inputs are stored.
Cost ranges and rates here are checked against contractor quotes and published industry data. If a number still looks off, email Support@RealCostIQ.com and we'll review and fix it.