What Is a Cap Rate?

A capitalization rate — or cap rate — measures the expected return on a real estate investment based on its income. It’s calculated by dividing a property’s annual net operating income (NOI) by its purchase price.

Cap Rate Formula

Cap Rate = Net Operating Income ÷ Property Value

Example
If a warehouse generates $120,000 per year in net income and costs $2 million, the cap rate is 6%. This means you’re earning a 6% return before financing costs.

Why It Matters for Warehouse Investors

• Helps compare investment opportunities
• Shows market risk and potential return
• Lower cap rates often mean lower risk, higher demand
• Higher cap rates can mean more risk or older facilities

Typical Warehouse Cap Rates
Industrial and warehouse properties in major metros like Dallas, Atlanta, or Los Angeles often range from 5% to 7%, depending on location, tenant quality, and lease length.

Bottom Line
Cap rates are a quick way to gauge how profitable a warehouse investment may be. They don’t tell the full story, but they’re a key metric every investor should understand.