Industrial & Warehouse Cap Rate Calculator & Modeling Guide
Underwrite distribution centers, shallow-bay warehouses, and flex industrial facilities using the universal Cap Rate formula and illustrative NNN lease assumptions.
Cap Rate Calculator
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NOI = Effective Gross Income (EGI) minus operating expenses (property tax, insurance, maintenance, management), before loan payments and income taxes.
Calculation Summary
Understanding Industrial & Logistics Cap Rate Modeling
Industrial real estate—spanning last-mile logistics warehouses, cold storage, light manufacturing, and flex space—frequently utilizes Triple Net (NNN) or Modified Gross leases where tenants reimburse property taxes, building insurance, and common area maintenance (CAM). In illustrative underwriting models, modern high-clear-height distribution facilities are often modeled at lower cap rates (e.g., 5.25% to 6.00%), while older shallow-bay or specialized manufacturing buildings are modeled at wider illustrative yields (e.g., 6.25% to 7.25%+) to reflect functional obsolescence and re-leasing downtime. All ranges on this page are educational modeling assumptions rather than live market quotes.
Core Industrial Valuation Factors
Modern logistics tenants often require 32'–40' clear heights, ESFR sprinkler systems, and ample dock-high doors. Older low-clearance buildings typically require higher yield assumptions.
A low going-in Cap Rate on an industrial asset may reflect legacy 5-to-10-year leases signed below current market rents, requiring careful rollover and downtime modeling.
Even under NNN leases, landlords are frequently responsible for structural roof replacement and heavy truck-court concrete resurfacing.
Formula & Mathematical Definition
Cap Rate (%) = [ Net Operating Income (NOI) / Purchase Price ] × 100NOI (Net Operating Income): Gross operating revenue minus all operating expenses (property taxes, insurance, management, maintenance), before debt service and income taxes.
Purchase Price / Value: Total acquisition cost or current independent appraised market value.
Worked Industrial Underwriting Example (60,000 SF Distribution Warehouse)
Suppose you are modeling an illustrative 60,000 sq. ft. multi-tenant shallow-bay industrial warehouse on NNN leases:
- Purchase Price: $8,000,000 ($133.33 per sq. ft.)
- Base NNN Rental Revenue: $504,000 ($8.40 / SF NNN) + CAM/Tax Reimbursements (pass-through neutral)
- Vacancy & Collection Loss Allowance (4.0%): -$20,160
- Unreimbursed Landlord Expenses (Structural Reserve & Asset Management): -$11,840
- Stabilized Net Operating Income (NOI): $472,000 → Unleveraged Cap Rate = $472,000 ÷ $8,000,000 = 5.90%
Underwriting Takeaway: At an illustrative 5.90% Going-In Cap Rate with 3.0% annual contractual rent escalations, unleveraged yield-on-cost grows to 6.64% by Year 5—provided tenant rollover and structural roof reserves are properly budgeted.
Industrial Underwriting Pitfalls to Avoid
Frequently Asked Questions (FAQs)
What is an illustrative cap rate range for industrial warehouses?
In educational underwriting scenarios, logistics and multi-tenant industrial properties are commonly modeled between 5.25% and 7.00% depending on building specifications, tenant credit, and remaining lease term. Always verify local market comparables.
How do NNN expense reimbursements affect industrial NOI?
In a true NNN lease, reimbursed property taxes, insurance, and CAM flow through as both gross revenue and operating expense, leaving base rent (less vacancy and non-reimbursable owner reserves) as the primary driver of NOI.
Cap Rate Underwriting Reference Guide
Explore illustrative underwriting ranges, expense structures, and sensitivity frameworks across property types and market tiers.
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