Cap Rate

The cap rate is a property's net operating income divided by its price — the unlevered yield if you bought it in cash. It's the primary valuation shorthand in commercial property, and it moves inversely to value: when cap rates rise, prices fall for identical income. Rates vary by asset quality and location, so a 4% cap in a prime market and an 8% cap in a secondary one can represent the same risk-adjusted deal.