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Real Estate vocabulary · Commercial Real Estate

Cap rate

Meaning in real estate, with examples

nounAdvanced term

In real estate, cap rate means: Short for capitalisation rate: a property's net operating income divided by its value or price, used to compare returns on income-producing buildings.

In Turkish: kapitalizasyon oranı, getiri oranı

How it is used

A key figure for commercial investors and brokers. A building with an NOI of 500,000 bought for 10 million has a 5% cap rate. Lower cap rates usually mean higher prices and lower perceived risk; people say cap rates compress or expand.

Example sentences

  1. Prime offices in the city centre trade at a cap rate of around 5%.

  2. Logistics warehouses have seen cap rates fall as demand has grown.

Common collocations

  • going-in cap rate
  • cap rate compression
  • low cap rate
  • market cap rate
  • net operating incomeA property's yearly income from rent and other sources minus its operating costs, before mortgage payments and income tax are taken off.
  • rental yieldThe yearly rent from a property shown as a percentage of its price or value. A home worth 200,000 that earns 10,000 a year has a 5% gross yield.
  • return on investmentThe profit from an investment compared with the money put into it, usually shown as a percentage.
  • commercial real estateProperty used for business rather than as a home, such as offices, shops, warehouses, hotels and factories.

More terms: Commercial Real Estate

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