Commercial Property ROI Calculator
Commercial property yield.
Calculate commercial property ROI, cap rate, and cumulative NOI across a lease term using rental income, expenses, and vacancy assumptions.
What this tool does
This calculator models the financial output of a commercial property investment by computing two key metrics: capitalization rate (the annual yield relative to the property's purchase price, assuming an all-cash purchase) and total net operating income across the lease term. The inputs—property price, annual rental income, operating expenses, vacancy rate assumption, and lease length—combine to show how much income the property generates after accounting for vacancies and costs. The cap rate expresses annual NOI as a percentage of the purchase price; cumulative NOI illustrates total cash flow over the holding period. Results depend most heavily on rental income and the vacancy assumption. A typical scenario involves evaluating whether a property's income justifies its purchase price over a defined lease agreement. The calculator does not account for financing costs, tax implications, property appreciation, tenant turnover between leases, inflation, or maintenance surprises beyond stated annual expenses. Results are for illustration only.
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Formula Used
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Calculations or display — let us know.
Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Commercial property ROI calculator measures yield on offices, retail, industrial properties. Cap rate = NOI / property price. Commercial typically 6-10% cap rate vs residential 3-5% - higher yields compensate for more variable demand and longer void periods. 1M industrial unit at 80k NOI = 8% cap rate.
Example: 1M property, 100k annual rent, 5% vacancy assumption, 15k expenses, 5-year lease. Effective rent 95k. NOI = 80k. Cap rate = 8%. Total NOI over 5 years = 400k. Strong cash flow vs residential. Trade-off: longer void periods (6-18 months between tenants common), specialist tenant marketing, tenant default risk concentration.
Commercial property types and typical cap rates: Office (/major cities): 4-6%. Office (regional): 6-9%. Retail (high street): 6-10%. Industrial/logistics: 5-8% (high demand from e-commerce). Multi-let industrial: 7-10%. Warehousing: 6-9%. Pubs/restaurants: 8-12%. Higher cap rate often signals higher risk - vacancy, tenant quality, maintenance burden. Long leases (5-10 years) preferred - reduce void risk and stabilise income.
Quick example
With property price of 1,000,000 and annual rent of 100,000 (plus annual operating expenses of 15,000 and vacancy rate of 5%), the result is 8.00%. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.
Which inputs matter most
You enter Property Price, Annual Rent, Annual Operating Expenses, Vacancy Rate %, and Lease Term (years). Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.
What's happening under the hood
NOI = (rent × (1 - vacancy)) - expenses. Cap rate = NOI / price × 100. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.
Why run this
Running the numbers makes the trade-offs concrete. Small changes in the inputs can move the result more than intuition suggests, which is hard to judge without working it out.
What this doesn't capture
This is a simplified model that holds its assumptions constant. Real outcomes vary with market conditions, costs, taxes, and timing, so the figure is best read as one scenario rather than a forecast.
£1,000,000, £100,000 rent, 5% vacancy = 8.00%.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
This calculator computes capitalization rate by first determining net operating income. Annual rent is adjusted downward by the vacancy rate percentage to model rental income loss, then annual operating expenses are subtracted to arrive at net operating income. The capitalization rate is then calculated by dividing this net operating income by the property price and multiplying by 100 to express the result as a percentage. The model assumes a constant vacancy rate and stable operating expenses over the holding period. It does not account for property appreciation, financing costs, income taxes, transaction fees, future expense inflation, or variations in vacancy across different time periods. Capitalization rate reflects current yield only and should not be interpreted as a projection of future returns.
References
Frequently Asked Questions
Commercial vs residential yields?
Best commercial sectors?
Lease structure considerations?
Commercial vs residential management?
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