What Are Commercial Property Rates? Understanding Taxes, Cap Rates, and Lease Rates in CRE
What are commercial property rates?
This is one of those questions that sounds straightforward but actually has multiple answers depending on what you’re asking about. In commercial real estate, the word “rates” can refer to several different things — and confusing them can lead to costly misunderstandings.
I’m Matt Bingaman, Commercial Real Estate Advisor, and I’m going to unpack every type of “rate” you’ll encounter in commercial real estate so you can walk into any conversation with confidence.
1. Property Tax Rates
The most common interpretation of “commercial property rates” — especially for those coming from the UK, Australia, or other international markets — refers to property taxes (sometimes literally called “rates” in those countries).
In the United States, commercial property taxes are:
- Assessed by local governments (county or municipality)
- Calculated as a percentage of the property’s assessed value (called the “millage rate” or “mill rate”)
- Vary dramatically by location — a property in Texas might have an effective tax rate of 2.0%+, while the same property in Alabama might be under 0.5%
How Property Taxes Are Calculated
Here’s the basic formula:
Assessed Value × Tax Rate (Mill Rate) = Annual Property Tax
For example:
- Property assessed at $1,000,000
- Mill rate of 25 mills (or 2.5%)
- Annual property tax = $25,000
What many new investors don’t realize is that commercial properties are often assessed differently than residential properties. Some states assess commercial properties at a higher percentage of market value, and commercial properties typically don’t qualify for homestead exemptions or other residential tax breaks.
My Advice on Property Taxes
I always tell my clients: verify the tax situation before you buy. Don’t rely on the seller’s current tax bill as your guide. When the property changes hands, many jurisdictions will reassess the value, potentially increasing your taxes significantly. I’ve seen clients budget based on the seller’s taxes only to face a bill that’s 30–50% higher after closing.
2. Capitalization Rates (Cap Rates)
In CRE investing, the cap rate is arguably the most important “rate” you’ll encounter. It measures the rate of return on a commercial property based on its net operating income.
The Formula
Cap Rate = Net Operating Income (NOI) ÷ Purchase Price
For example:
- A property generates $100,000 in NOI
- It’s listed for $1,250,000
- Cap Rate = 100,000 ÷ 1,250,000 = 8.0%
What Cap Rates Tell You
- Higher cap rate = Higher return but typically higher risk or less desirable location
- Lower cap rate = Lower return but typically lower risk, better location, or stronger tenant profile
In today’s market, here’s roughly where cap rates are landing by property type:
Property Type
Typical Cap Rate Range
Class A Multifamily
4.0% – 5.5%
Industrial/Logistics
5.0% – 7.0%
Retail (Grocery-Anchored)
5.5% – 7.0%
Office (Class A)
6.0% – 8.0%
Office (Class B/C)
7.5% – 10.0%+
Self-Storage
5.0% – 7.5%
The Trap I See Investors Fall Into
Chasing the highest cap rate is tempting, but I’ve watched clients buy a “10 cap” property only to discover the NOI was inflated, the tenants were shaky, and the building needed $200,000 in deferred maintenance. A high cap rate is only as good as the income behind it.
3. Lease Rates (Rental Rates)
When commercial tenants ask about “rates,” they’re typically asking about lease rates — what it costs to rent space.
Commercial lease rates are quoted in several ways:
Per Square Foot Per Year
The most common method. If a space is quoted at $20/SF/YR and you’re leasing 2,000 square feet:
- Annual rent = $40,000
- Monthly rent = $3,333
Gross vs. Net
- Gross lease rate — The rate includes most or all operating expenses (taxes, insurance, maintenance). The tenant pays one flat amount.
- Net lease rate (NNN) — The base rate plus the tenant pays their proportional share of taxes, insurance, and common area maintenance (CAM) separately.
A space quoted at $15/SF NNN with $8/SF in NNN expenses has an effective rate of $23/SF — something tenants frequently misunderstand.
Percentage Rent
Common in retail, where tenants pay a base rent plus a percentage of their gross sales above a certain threshold (the “breakpoint”).
4. Interest Rates (Loan Rates)
I’ve covered this extensively in my posts on commercial property loan rates and interest rates, but in short: this is the rate your lender charges you to borrow money for the purchase. In 2025, these range from approximately 5.5% to 12%+ depending on the loan type and deal profile.
Why Understanding All These Rates Matters
Here’s what I tell every client: commercial real estate is a numbers game. If you don’t understand the rates that drive your taxes, your returns, your rental income, and your financing costs, you can’t make informed decisions.
And making uninformed decisions in CRE is how people lose money.
My job is to make sure you understand every number, every rate, and every calculation before you put a dollar at risk.
Let’s Review the Numbers Together
Whether you’re evaluating a potential acquisition, renegotiating a lease, or trying to understand your property tax bill, I’m here to help you make sense of the numbers.
📞 Contact Matt Bingaman for expert commercial real estate guidance.