Glossary definition
Cap Rate (Capitalisation Rate)
The ratio of a property's net operating income to its current market value, expressed as a percentage and used to value income-producing assets. A lower cap rate indicates a higher value relative to income and typically reflects a lower-risk, prime location.
Definition
The ratio of a property's net operating income to its current market value, expressed as a percentage and used to value income-producing assets. A lower cap rate indicates a higher value relative to income and typically reflects a lower-risk, prime location. In the UK commercial property market, prime office cap rates might sit at 4–5%, while secondary regional assets could trade at 7–9%.
See also
Closely related terms.
Net Yield
The annual rental income from a property expressed as a percentage of its purchase price or market value, after deducting all operating expenses such as management fees, maintenance, insurance, and void periods.
Gross Yield
The annual rental income from a property expressed as a percentage of its purchase price or market value, before deducting any expenses.
ERV (Estimated Rental Value)
The annual rent that a property is expected to achieve on the open market, as assessed by a RICS-qualified valuer.
Valuation
A professional assessment of a property's market value, carried out by a qualified surveyor for lending, investment, or transactional purposes.
Further reading
Guides that touch this term.
Guide
RICS Red Book Valuations for Development: What Lenders Require
A comprehensive guide to RICS Red Book valuations in development finance, covering what lenders require, how valuations are structured, and how to ensure your scheme is accurately assessed.
11 min read readReadGuide
Commercial Mortgages in the UK: A Complete Guide
Everything you need to know about commercial mortgages in the UK - from eligibility criteria and rental coverage ratios to how lenders value multi-let properties and what lease length matters.
4 min read readReadGuide
UK Development Finance Market 2026: Rates, Trends and Outlook
A comprehensive overview of the UK development finance market in 2026, covering current interest rates, lender appetite, emerging trends, and what developers should expect over the coming 12 months.
9 min read readRead
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