Calculate cap rate for commercial property valuation
Effective Gross Income-
Net Operating Income-
Cap Rate-
Gross Rent Multiplier-
Capitalization Rate for Commercial Properties
Key Takeaways
Cap rate = NOI ÷ Property Value — always use Net Operating Income (after vacancy and expenses), never gross rent.
Singapore office cap rates have historically ranged 3.5–5.5%, retail 4.5–6.5%, industrial/logistics 5.5–7.5% — use sector benchmarks to assess if a property is priced correctly.
Lower cap rate = higher price relative to income = lower current yield (often signals high-quality asset or growth potential); higher cap rate = higher yield but potentially higher risk.
Cap rate compression (falling rates) increases property values; cap rate expansion (rising rates) deflates values — track quarterly changes in sector benchmarks.
When comparing cap rates across properties, ensure vacancy assumptions and expense ratios are consistent — a 7% cap rate with 15% vacancy assumed is very different from 7% at 5% vacancy.
What It Does
Understand and calculate Cap Rate — the standard metric for commercial property valuation. Compare cap rates across property types (office, retail, industrial) and use it to estimate fair market value from net operating income.
You can find this calculator in the Calculators tab on ShiokNest. It updates results instantly as you adjust inputs — no waiting, no page reloads.
Why It Matters
Cap rate (capitalisation rate) is the universal language of commercial property valuation. It tells you what return the property generates as a percentage of its value, assuming no debt. Two commercial properties at $3M and $4M cannot be compared on price alone — but a 5.2% cap rate vs a 4.8% cap rate is an immediately legible comparison of investment quality. Every commercial property transaction in Singapore is effectively priced on its implied cap rate.
The single most important...
How It Works
Navigate to Calculators — Click the "Calculators" tab in the ShiokNest navigation bar. All 47 calculators are grouped by purpose for easy access.
Select the calculator — Choose "How to Calculate Capitalisation Rate" from the calculator list. You will see default values already loaded so you can explore immediately.
️ Enter your values — Replace the defaults with your own numbers. The key fields are:
Review the results — The calculator updates instantly as you change any input. Key results are displayed in KPI cards and charts that update as you adjust inputs.
Run what-if scenarios — This is where the real power lies. Change one variable at a time to see its impact. For example, try increasing the interest rate by 1% or extending your holding period by 5 years. Note how the results shift.
Compare and decide — Run 2-3 different scenarios and note the results. This gives you a range of outcomes to base your decision on, rather than relying on a single projection.
Examples
D1 shophouse: calculating implied cap rate from asking price
How to read this:
The gross yield of 6% looks attractive, but the cap rate of 4.77% is the relevant comparison metric. At 4.77%, this shophouse is priced within the D1 market range of 4.5–5.0%. This means the seller has priced it correctly relative to the market — there is no obvious discount or premium. For a buyer seeking above-market return, this property does not offer one. The calculator also shows that if you push the vacancy assumption to 15% (reflecting a difficult leasing environment), NOI drops t...
Reverse cap rate: what rent must a $2M industrial unit achieve to justify its price?
Inputs
Purchase price
$2,000,000
Target cap rate
6.0% (JTC industrial benchmark)
Operating expenses + vacancy
$20,000/year + 10% vacancy
Question
What monthly rent justifies the $2M asking price?
Results
Required NOI at 6% cap rate
$120,000/year
Required gross rent (reverse calculation)
$155,556/year ($12,963/month)
Market rent for comparable JTC unit
~$10,500–$11,500/month
Verdict
Property is overpriced at $2M — implied cap rate at market rent is ~5.1%
How to read this:
The reverse cap rate calculation is arguably the most powerful use of this tool: instead of calculating cap rate from a given price, enter your target cap rate and solve for the required rent. If market rents for comparable JTC units are $10,500–$11,500/month but the required rent to justify $2M at a 6% cap rate is $12,963/month, the property is overpriced. The buyer would need to accept a 5.1% cap rate instead of the 6% benchmark. Whether a 5.1% cap rate is acceptable depends on the qualit...
Tips & Pitfalls
Expert Tips
Use realistic assumptions — Singapore condo appreciation has historically averaged 2-4% per year. Avoid overly optimistic projections. When in doubt, use 3% as a baseline.
Common Pitfalls
Using gross rent instead of NOI — Cap rate must be calculated on Net Operating Income. Using gross rent without deducting vacancy, management fees, insurance, and maintenance overstates the cap rate by 15–25%.
Ignoring vacancy rate — Commercial properties routinely experience 5–15% vacancy. Assuming 0% vacancy produces a cap rate that does not reflect real-world returns. Use market vacancy rates for the sector and location.
Comparing cap rates across sectors — A 5% cap rate for a CBD office is excellent; a 5% cap rate for a JTC industrial unit is below market. Always benchmark against same-sector comparables, not the general market.
Frequently Asked Questions
Is my data saved?
No. All calculations run entirely in your browser. Nothing is stored on our servers or shared with third parties.
What is a good cap rate for Singapore commercial property?
Benchmarks vary significantly by sector and location. Grade A CBD office: 3.0–4.0%. Shophouses (D1–D9): 4.0–5.5%. Suburban retail: 5.0–6.5%. JTC industrial (flatted factory): 5.5–7.0%. High-tech industrial: 5.0–6.5%. These benchmarks change with interest rate cycles — when risk-free rates rise, cap rates tend to rise (prices fall). Check recent transaction data on the Commercial tab for current market cap rates.
Can I save my results?
Log in to save scenarios to your dashboard, or use the share button to copy a URL that encodes your inputs.
Does cap rate include mortgage financing?
No. Cap rate is an unlevered metric — it measures the return on the full property value assuming no debt. This makes it useful for comparing properties independent of their financing structure. To calculate the leveraged return (cash-on-cash return), you must deduct mortgage payments from NOI and divide by equity deployed. For a property at 4.8% cap rate with 65% LTV at 4% interest cost, the cash-on-cash return on equity is approximately 5.6%.