What is a Cap Rate for Industrial Property in the GTA?
By Michael Law, Industrial Real Estate Broker
Quick answer
A cap rate (capitalization rate) is the ratio of a property's net operating income to its purchase price, expressed as a percentage. Lower cap rates indicate higher valuations; GTA industrial cap rates have compressed significantly over the past decade.
What is a Cap Rate for Industrial Property in the GTA?
<h2>What is a Cap Rate for Industrial Property?</h2><p>A <strong>capitalization rate (cap rate)</strong> is the primary valuation metric used in commercial real estate investment. It is calculated as:</p><p><strong>Cap Rate = Net Operating Income (NOI) ÷ Purchase Price</strong></p><p>For example, a GTA industrial building generating $500,000 in annual NOI purchased for $10,000,000 trades at a 5.0% cap rate.</p><h2>GTA Industrial Cap Rate Trends</h2><p>GTA industrial cap rates have compressed dramatically over the past decade as institutional capital flooded the asset class and vacancy hit historic lows. In 2015, GTA industrial assets traded in the 6.5–7.5% range. By 2022, prime GTA industrial cap rates compressed to 3.0–3.75% — among the lowest in North America. As of 2025–2026, cap rates have partially decompressed due to higher interest rates, with prime GTA industrial now trading in the <strong>4.5–5.5% range</strong> and secondary markets in the 5.5–6.5% range.</p><h2>What Drives Cap Rate Variation in GTA Industrial</h2><ul><li><strong>Location:</strong> Mississauga Airport, Brampton, and Vaughan trade tighter than Barrie or Hamilton</li><li><strong>Lease term remaining:</strong> A 10-year lease to a credit tenant compresses the cap rate vs. a month-to-month tenancy</li><li><strong>Tenant covenant:</strong> National or publicly-traded tenants command lower cap rates than local single-entity tenants</li><li><strong>Building quality:</strong> Modern Class A logistics (36'+ clear, ESFR sprinklers, LED lighting) trades tighter than older functional buildings</li><li><strong>Net vs. gross lease:</strong> Triple-net leases with clean landlord economics are preferred by investors</li></ul><h2>Cap Rate vs. Cash-on-Cash Return</h2><p>Cap rate assumes an all-cash purchase. Investors using leverage should model <strong>cash-on-cash return</strong> — the ratio of annual pre-tax cash flow to total cash invested — which accounts for mortgage payments and better reflects actual levered returns.</p>
Related questions
Other questions about this
Are GTA industrial cap rates going up or down in 2026?
Cap rates partially decompressed from their 2022 lows as interest rates rose. As of 2026, prime GTA industrial trades in the 4.5–5.5% range, with some stabilization as rate cut expectations have improved investor sentiment.
How do I calculate NOI for an industrial property?
NOI = Gross Rental Income minus Operating Expenses (property taxes, insurance, maintenance). In a triple-net lease, the tenant pays most operating expenses, so NOI is close to the gross rent collected by the landlord.
What cap rate should I target for GTA industrial investment?
Target cap rate depends on your financing cost and return requirements. With current lending rates, investors typically target a 50–100 basis point spread above their mortgage rate. A 5.0% cap rate with 4.0% financing produces positive leverage.
Michael Law
Industrial Real Estate Broker, Managing Partner
Lennard Commercial Realty · RECO #4874682
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