Cap Rate & Valuation

A capitalization rate (cap rate) is the ratio of a property's Net Operating Income (NOI) to its purchase price or value: Cap Rate = NOI ÷ Value. A 6.0% cap rate on a property generating $300,000 NOI implies a $5,000,000 value. Cap rates represent an investor's initial yield and are the primary valuation metric for income-producing commercial properties.

Cap rates vary significantly by asset class and submarket. As of 2026: investment-grade NNN retail in Washington trades at roughly 4.75–6.25%; industrial is 4.50–5.75% for Class A; multifamily in Seattle/Eastside is 4.25–5.50%; suburban office has softened to 7.50–10.50% due to post-pandemic vacancy. See our Pacific Northwest Cap Rate Guide for a complete breakdown.

Cap rates and values move inversely: when cap rates fall (compress), values rise, and vice versa. A property at a 5.0% cap rate is worth 25% more than the same NOI at a 6.0% cap rate. This is why cap rate movements — driven by interest rates, investor demand, and risk appetite — matter so much to commercial property owners.

NOI = Effective Gross Income − Operating Expenses. EGI starts with potential gross rent, subtracts vacancy and credit losses, then deducts operating expenses including property taxes, insurance, utilities, maintenance, and management fees. NOI excludes debt service, depreciation, and income taxes.