A cap rate (capitalisation rate) is an industrial asset's net operating income divided by its purchase price, expressed as a percentage. In 2026, prime European logistics cap rates sit between 4.75% and 6.75%, with the UK at 5.00%–5.50%, Germany at 4.75%–5.25% and Poland at 6.25%–6.75%. Lower cap rates mean a higher price for the same income; investors trade cap rate for lease length, covenant, location and building quality.
A cap rate, or capitalisation rate, is the annual net operating income (NOI) of a property divided by its purchase price. It is expressed as a percentage. Cap rate = NOI ÷ Price. If a warehouse generates €500,000 of NOI and sells for €10M, the cap rate is 5.00%.
In European industrial real estate, the terms 'cap rate', 'yield' and 'net initial yield' are used almost interchangeably. All three measure the same thing: the unlevered income return an investor earns in year one.
NOI is gross rental income minus non-recoverable operating expenses, before debt service and tax. For a typical single-let logistics asset on a full repairing and insuring lease, NOI is close to gross rent because the tenant bears most costs. For multi-let estates, NOI is meaningfully lower after voids, management fees and non-recoverable service charge shortfalls.
These ranges move with rate cycles. Between 2022 and 2024, European prime logistics cap rates widened by roughly 150 basis points before stabilising in late 2024. Since then, values have recovered modestly as institutional capital has returned to the sector.
Two logistics buildings on the same road can trade at very different cap rates. The drivers are:
A cap rate is a single-year, unlevered snapshot. IRR is a multi-year, potentially levered total return that also captures rental growth, capex and exit pricing. A 5.00% cap rate asset with 4% annual rental growth and 55% LTV senior debt can produce a 14%+ IRR over five years. Buying on cap rate alone is a common amateur mistake.
For prime European logistics in 2026, 4.75%–5.50% is considered market for core institutional-grade assets. Value-add product should trade at 6.50%–8.50% to compensate for shorter leases, weaker covenants or refurbishment risk.
Neither. A lower cap rate means higher price for the same income (usually reflecting lower risk). A higher cap rate means lower price and higher income return (usually reflecting more risk). The right cap rate depends on your risk-return mandate.
Divide net operating income by purchase price. For example, €650,000 NOI ÷ €10,000,000 price = 6.50% cap rate. Use net rather than gross income and price rather than valuation for accurate market benchmarking.
No. Cap rate is an unlevered metric. It measures the property's income return before any financing. Levered returns are captured by cash-on-cash yield and equity IRR.