Calculate commercial real estate capitalization rates and net operating income across all 50 states and DC. Select your state and property type — multifamily, industrial, retail, or office — to benchmark your property against local CBRE H2 2025 cap rate ranges and major metro market data.
Commercial real estate capitalization rates and net operating income calculations are governed by established accounting standards, tax statutes, and valuation regulations. The following authorities define the framework applied across all 50 states.
| Standard / Statute | Citation | What It Governs |
|---|---|---|
| Uniform Standards of Professional Appraisal Practice (USPAP) | USPAP Standards Rule 1-4(c) | Governs the Income Approach to commercial property valuation; defines proper capitalization of net operating income (NOI) |
| Internal Revenue Code — Depreciation | 26 U.S.C. § 168 (MACRS) | Defines 39-year straight-line depreciation for commercial non-residential property and 27.5-year for residential rental property |
| Internal Revenue Code — Like-Kind Exchanges | 26 U.S.C. § 1031 | Governs tax-deferred exchanges of commercial real estate; replacement property must meet equal or greater value requirements |
| FIRREA Appraisal Regulations | 12 C.F.R. § 34.41 et seq.; Title XI | Federal requirements for certified appraisals in federally related transactions; mandates income capitalization methodology |
Abbreviations: USPAP = Uniform Standards of Professional Appraisal Practice · U.S.C. = United States Code · MACRS = Modified Accelerated Cost Recovery System · FIRREA = Financial Institutions Reform, Recovery, and Enforcement Act · C.F.R. = Code of Federal Regulations
A capitalization rate — or cap rate — is the fundamental metric used in commercial real estate to measure a property's natural rate of return without factoring in debt financing (mortgages). It is calculated by dividing the Net Operating Income (NOI) by the current property value or purchase price. For example, a property generating $100,000 in NOI valued at $1,500,000 has a cap rate of 6.67%.
Cap rates vary significantly by geographic market due to differences in investor demand, economic growth, liquidity, and perceived risk. Primary gateway markets (e.g. New York, Los Angeles, Boston) typically command lower cap rates (4.5%–6.0%) because investors accept lower initial yields for perceived safety and liquidity. Secondary and tertiary markets command higher cap rates (6.5%–9.0%+) to compensate investors for lower liquidity and higher vacancy risk.
Different asset classes carry distinct risk profiles and operational requirements that dictate benchmark cap rates. Multifamily properties generally trade at the lowest cap rates (4.75%–5.75%) due to stable demand and Fannie Mae/Freddie Mac financing liquidity. Industrial assets also trade at compressed yields due to e-commerce demand. Retail cap rates vary widely (6.0%–8.5%) depending on tenant credit (grocery-anchored vs. unanchored strip). Office assets currently command the highest cap rates (7.5%–10.0%+) reflecting hybrid work patterns and leasing risk.
Net Operating Income (NOI) is the total annual gross income generated by an income-producing property minus all operating expenses (property taxes, insurance, utilities, property management fees, maintenance, and repairs) and vacancy losses. NOI explicitly excludes debt service (principal and interest mortgage payments), capital expenditures (major roof or HVAC replacements), depreciation, and income taxes. This standardization allows investors to compare properties on an apples-to-apples operational basis.
Because most commercial real estate is acquired using debt leverage, rising interest rates increase the cost of borrowing. When mortgage interest rates exceed prevailing cap rates (negative leverage), investors require higher cap rates — meaning lower property purchase prices relative to income — to achieve their required cash-on-cash return targets. Historically, commercial cap rates maintain a 150 to 300 basis point spread above the 10-year Treasury yield.
This tool is for informational and educational reference only and does not constitute real estate investment advice. Cap rate benchmarks are estimates based on published industry surveys and may not reflect current conditions in your specific market, submarket, or asset class. Actual cap rates vary significantly based on property condition, location, tenant quality, lease terms, and local market dynamics. Always consult a licensed commercial real estate broker, appraiser, or investment advisor before making real estate investment decisions.