Understanding Cap Rates: What’s Fair for Industrial Properties in 2025?

If you’re considering selling or investing in industrial real estate, you’ve likely come across the term “cap rate.” But what exactly is a cap rate—and how do you know what’s fair in today’s market?

Whether you own a single-tenant warehouse or a multi-tenant light industrial property, understanding cap rates is essential for accurately pricing, buying, or evaluating any deal in 2025.

In this article, we’ll break down what a cap rate is, how it’s used to value industrial properties, and what sellers and investors should expect in today’s market environment.

What Is a Cap Rate?

Cap rate (short for capitalization rate) is a formula used to estimate the return on investment of an income-producing property. It’s a simple way to measure a building’s value based on the income it generates.

Cap Rate Formula:
Cap Rate = Net Operating Income (NOI) ÷ Purchase Price

So, if a warehouse generates $120,000 in annual NOI and sells for $2,000,000:

Cap Rate = 120,000 ÷ 2,000,000 = 6%

This 6% tells investors how much income they’re earning relative to the purchase price—not including financing or appreciation.

What’s a “Fair” Cap Rate for Industrial Real Estate?

The answer depends on several factors, including location, tenant stability, property condition, and market dynamics.

Here’s a general range for 2025 industrial cap rates:

Property Type	Location	Cap Rate Range
Class A Distribution (Institutional)	Tier 1 Markets (e.g., NY, LA, Chicago)	4.75% – 5.5%
Multi-Tenant Light Industrial	Secondary Markets	6% – 7.5%
Single-Tenant Industrial	Tertiary Markets or Short Lease Term	7% – 8.5%
Vacant or Owner-User Warehouses	All Markets	Value depends on PSF comps, not cap rate

💡 Keep in mind: Lower cap rates = higher pricing (more demand, less perceived risk). Higher cap rates = lower pricing (more perceived risk).

Proximity to major highways, ports, rail lines, and population centers adds value—especially for distribution and logistics-focused tenants. Local zoning and tax incentives also influence demand.

What Influences the Cap Rate for Your Property?

1. Lease Structure

Long-term leases with strong credit tenants (think FedEx or Amazon) often result in lower cap rates because of stability. Short-term or month-to-month tenants raise the risk—and the cap rate.

2. Tenant Creditworthiness

A building leased to national tenants will trade at a premium compared to a mom-and-pop operation—even with the same income.

3. Location Desirability

Urban infill locations or sites near ports, interstates, or last-mile hubs command lower cap rates due to higher demand and redevelopment potential.

4. Property Condition & Functionality

High clear heights, modern loading doors, large truck courts, and energy-efficient systems make a difference.

5. Market Conditions

Interest rates, availability of financing, and investor sentiment all impact cap rates. In 2025, higher interest rates have slightly widened cap rates compared to the 2020–2022 peak.

What About Owner-Occupied or Vacant Properties?

If your building is vacant or owner-occupied, the cap rate may not apply directly, since there’s no income to capitalize. Instead, buyers will look at:

Replacement cost
Comparable sales on a price-per-square-foot basis
Market lease rates and rent potential
Redevelopment or repositioning value

In those cases, CommercialGRP can still provide a pricing opinion, using investor criteria and current off-market data.

How Can You Use Cap Rates to Your Advantage?

Sellers: Knowing the cap rate range helps you price your building accurately and attract serious buyers.
Investors: Cap rates help you compare deals across markets and risk profiles.

Brokers & Advisors: A cap rate analysis supports appraisals and negotiations.

Want to Know What Cap Rate Your Property Could Command?

At CommercialGRP, we analyze dozens of industrial sales across multiple markets each month. We’ll provide a free, no-obligation pricing estimate for your property—based on real market cap rates and investor demand.

Whether your building is fully leased or sitting vacant, we’ll give you a fair valuation and walk you through your selling options