Cap Rates by Property Type & Market in Canada: Complete Data Guide

Cap rates are the universal language of commercial real estate. Every investor, broker, appraiser, and lender speaks it. But here’s the thing — most people use cap rates wrong.

They compare apples to oranges. They trust the seller’s NOI without questioning it. They treat a cap rate like the whole story when it’s really just the first sentence.

This guide gives you current Canadian cap rate data by property type and major market, explains how cap rates connect to mortgage qualification, and — most importantly — tells you when to trust the number and when to be suspicious of it.

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What Is a Cap Rate?

A cap rate (capitalization rate) tells you the relationship between what a property earns and what it’s worth:

Cap Rate = NOI ÷ Market Value

Flip it around and you get the valuation formula lenders and appraisers actually use:

Market Value = NOI ÷ Cap Rate

NOI (Net Operating Income) is your annual rental income minus operating expenses — property taxes, insurance, management fees, maintenance, owner-paid utilities. It does NOT include mortgage payments or income tax.

A Real Example

Say you own a multi-family building generating $250,000 NOI per year. Comparable sales in your market suggest a 4.5% cap rate for that asset type. The implied value:

$250,000 ÷ 0.045 = $5.56 million

Now imagine market conditions shift and buyers start demanding a 5.0% cap rate. Same building. Same income. New math:

$250,000 ÷ 0.050 = $5.00 million

That half-percent move just wiped $560,000 off your property’s value — without a single tenant leaving or a single rent cheque bouncing. That’s why cap rate movements keep investors up at night.

Cap Rate as a Risk Thermometer

Think of it this way:

• Low cap rate = buyers see low risk, high demand, premium pricing
• High cap rate = buyers see more risk or weaker demand, discounted pricing

A Class A purpose-built rental in downtown Toronto trades at a low cap rate because buyers are confident in the income, the market, and their ability to sell again later. A 1970s strip mall in a small Saskatchewan town? Buyers want a much higher return to compensate for the uncertainty.

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Canadian Cap Rates by Property Type (2026)

These ranges reflect actual market transactions in early 2026. Where your specific asset lands within the range depends on building quality, tenant mix, lease terms, and location within the market.

Multi-Family Residential

Asset Class	Cap Rate Range
Purpose-built rental — Gateway markets (Toronto, Vancouver)	3.5% – 4.5%
Purpose-built rental — Secondary cities (Calgary, Ottawa, Edmonton)	4.5% – 5.5%
Purpose-built rental — Tertiary/smaller markets	5.5% – 7.0%
Value-add / older vintage multi-family	5.0% – 6.5%
Student housing	5.0% – 6.5%

Multi-family is still the most compressed asset class in Canada. Cap rates have expanded from the historic lows of 2021–2022, but strong rental demand — especially in cities where new supply can’t keep up with population growth — keeps buyer appetite high.

Industrial

Asset Class	Cap Rate Range
Class A logistics / distribution — Gateway markets	4.5% – 5.5%
Class A industrial — Secondary markets	5.5% – 6.5%
Multi-tenant light industrial	5.5% – 7.0%
Flex / R&D / specialized industrial	6.0% – 7.5%
Older vintage industrial / single-tenant	6.5% – 8.0%

Industrial had a wild ride. E-commerce demand drove massive cap rate compression between 2020 and 2022. Then rising interest rates slowed transaction volumes and leasing activity normalized. Cap rates expanded modestly in 2024–2025. Major logistics corridors — think the 400-series highways around Toronto or the Fraser Valley in BC — still trade tightly.

Office

Asset Class	Cap Rate Range
Class A downtown core — Toronto, Vancouver	5.5% – 7.0%
Class A suburban office	6.5% – 8.5%
Class B office (stabilized)	7.5% – 9.5%
Class B/C office (vacancy concerns)	9.0% – 12%+
Medical / professional office	5.5% – 7.5%

Office is the problem child of Canadian commercial real estate right now. Hybrid work isn’t going away, and suburban Class B product is taking the worst of it. Vacancy rates in most Canadian CBDs are still elevated compared to pre-2020 norms, transaction volumes are thin, and price discovery is messy. Be careful with office cap rates — the data is based on a distressed, low-volume market.

Medical office is the exception. Stable healthcare tenants and consistent demand keep that sub-sector pricing well.

Retail

Asset Class	Cap Rate Range
Grocery-anchored retail (national anchor)	5.0% – 6.0%
Strip retail / neighbourhood centre	5.5% – 7.0%
Power centre / large format retail	6.5% – 8.0%
Single-tenant net lease (investment-grade)	5.0% – 6.5%
Single-tenant net lease (local/regional)	6.0% – 8.0%
Urban street-front retail	4.5% – 6.5%

Necessity-based retail — grocery-anchored centres, pharmacies, banks — has held up well. Single-tenant net lease properties with long-term leases to national credit tenants are popular with private investors for good reason: predictable income, minimal landlord responsibilities, and tight cap rates that reflect that simplicity.

Hospitality

Asset Class	Cap Rate Range
Select-service hotel (strong market)	6.5% – 8.5%
Full-service hotel	7.0% – 9.0%
Economy / limited-service	8.0% – 10%+

One important note on hotels: cap rates here are calculated after management fees, which makes direct comparison to other asset classes tricky. Hotel values are also highly sensitive to RevPAR trends and brand affiliation. Don’t compare a hotel cap rate to a multi-family cap rate and assume they’re equivalent risk.

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Here’s something most investors miss: lenders apply their own internal cap rate floor — sometimes 50+ basis points above market — which directly shrinks your loan amount. book a free strategy call with LendCity and we’ll show you exactly how your deal gets underwritten before you’re sitting at the closing table.

Cap Rates by Major Canadian Market (2026)

The city often matters more than the asset class. The same building in a different market can carry a 100–200+ basis point spread in cap rate.

Multi-Family Cap Rates by City

City	Class A Cap Rate	Class B / Value-Add Cap Rate
Vancouver	3.5% – 4.0%	4.5% – 5.5%
Toronto	3.8% – 4.5%	4.8% – 5.8%
Ottawa	4.5% – 5.2%	5.2% – 6.2%
Calgary	4.5% – 5.5%	5.5% – 6.5%
Edmonton	5.0% – 6.0%	6.0% – 7.5%
Montreal	4.5% – 5.5%	5.5% – 6.5%
Halifax	5.0% – 6.0%	6.0% – 7.5%

Industrial Cap Rates by City

City	Class A Cap Rate	Light Industrial
Vancouver	4.5% – 5.2%	5.5% – 6.5%
Toronto	4.8% – 5.5%	5.5% – 7.0%
Calgary	5.5% – 6.5%	6.5% – 7.5%
Edmonton	5.8% – 7.0%	6.5% – 8.0%
Montreal	5.0% – 6.0%	6.0% – 7.5%
Ottawa	5.5% – 6.5%	6.0% – 7.5%

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How Cap Rates Got Here: A Quick History

2020–2022: The Compression Era

Ultra-low interest rates and pandemic-driven demand shifts pushed cap rates to historic lows across almost every Canadian asset class. Multi-family cap rates below 3% showed up in some Vancouver and Toronto submarkets. Industrial cap rates dropped from the 6–7% range all the way to 4–5% in major markets.

For owners, this was extraordinary. The same income stream was suddenly worth 25–40% more than it had been a few years earlier — without doing a thing to the property.

2022–2025: The Rate Shock

The Bank of Canada raised the overnight rate from 0.25% to 5.00% between March 2022 and July 2023. That’s a brutal move in a short period. The spread between cap rates and the cost of debt — what investors call “positive leverage” — evaporated. For many deals, it turned negative.

Buyers and sellers stopped agreeing on price. Transaction volumes fell sharply. Cap rates started expanding, but slowly — because most owners weren’t forced to sell, and distressed selling stayed limited.

2025–2026: Finding the Floor

The Bank of Canada’s rate-cutting cycle, which began in 2024, has started to restore deal economics. The BoC overnight rate sits in the 2.75%–3.25% range as of early 2026, and 5-year commercial mortgage rates have followed down. Positive leverage is back for prime multi-family and Class A industrial.

Here’s where things stand right now:

• Multi-family and Class A industrial: Cap rates stabilizing, selective compression resuming in prime assets
• Office: Still expanding, still challenged, still thin on transaction volume
• Grocery-anchored retail: Quietly attractive — yields not seen since 2018
• Secondary markets: Proceed carefully — elevated vacancy is a real risk in some cities

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If your deal has a 4.0% cap rate and you’re borrowing at 5.5%, you’re running negative leverage — and that changes everything about your risk profile. schedule a free strategy session with us and we’ll model the levered return so you know exactly what you’re actually buying.

How Cap Rates Affect Your Mortgage Qualification

This is where cap rates stop being theoretical and start affecting your actual financing.

When a lender underwrites a commercial property, they’re not just looking at what you paid — they’re building their own picture of what the property is worth and whether the income covers the debt. The cap rate sits right in the middle of that process.

Here’s how it flows:

1. The lender (or their appraiser) calculates a market NOI for the property — often more conservative than what you’re showing them
2. They apply a market cap rate to that NOI to arrive at an appraised value
3. Your loan amount is based on that appraised value, not your purchase price
4. They then divide the NOI by the stressed debt service to calculate DSCR (Debt Service Coverage Ratio)
5. Most institutional lenders require a minimum DSCR of 1.20x–1.25x

The cap rate also determines whether positive leverage exists. When your cap rate is lower than your all-in mortgage rate, every dollar you borrow actually reduces your cash-on-cash return. That doesn’t automatically kill a deal, but it means your returns depend more on future rent growth and appreciation than on current cash flow — and that changes your risk profile significantly.

For commercial mortgage and multi-family financing qualification, lenders typically apply a cap rate floor in their underwriting — even if market transactions are happening at 3.8%, the lender’s internal model might floor at 4.5% to stress-test a value decline. The higher that floor, the lower your maximum loan amount.

CMHC-insured programs take this further. CMHC uses its own prescribed NOI calculation methodology and maintains benchmark cap rates for each major market. These can differ meaningfully from current market transactions and are designed to be conservative. In some cases, CMHC’s underwriting cap rate produces a lower appraised value — and therefore a lower insured loan amount — than a conventional lender would offer based on the same property.

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Using Cap Rates Intelligently: When to Trust Them and When to Question Them

Cap Rates Work Well When You’re…

Comparing similar assets in the same market. A 5.0% cap multi-family versus a 4.5% cap multi-family in Calgary? That’s a direct, useful comparison. You’re comparing apples to apples.

Quick-checking a listing price. If you know the market cap rate and can estimate NOI, you can sanity-check whether a seller’s asking price is in the ballpark in about 30 seconds.

Reading market direction. Cap rate trends tell you whether buyers are getting more or less confident in a market. Compression means money is flowing in. Expansion means caution is creeping in.

Cap Rates Mislead You When You’re…

Comparing across asset classes. A 5.0% cap retail property and a 5.0% cap multi-family are completely different risk profiles. Don’t let the matching number fool you into thinking they’re equivalent investments.

Trusting the seller’s NOI without verifying it. The cap rate is only as good as the income figure underneath it. Sellers routinely use below-market management expense ratios, ignore deferred maintenance reserves, or use optimistic vacancy assumptions. Always build your own NOI from actual leases and real expense data.

Ignoring how the deal is financed. Cap rate is an unlevered metric — it ignores your mortgage entirely. Two identical cap rate properties can produce drastically different cash-on-cash returns depending on the financing. Always model the levered return.

Ignoring capital expenditure. A property needing $600,000 in roof, mechanical, and parking lot work over the next three years has a very different real return than the cap rate suggests. Factor in your capital plan.

Use cap rate as a starting filter. The real investment decision comes from detailed cash flow modelling, physical due diligence, and a hard look at tenant credit quality.

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Frequently Asked Questions

What is a "good" cap rate in Canada right now?

There’s no single right answer — it depends entirely on your strategy. A low-risk, income-focused investor buying a stabilised multi-family in Toronto might be perfectly happy with a 4.0–4.5% cap rate. A value-add investor targeting 10%+ returns in a secondary market might find a 6.5% going-in cap rate too thin to work with.

The real question is: does the cap rate give you enough spread over your cost of capital, and does it fairly reflect the risk you’re taking on? If yes, it’s a good cap rate for that deal.

Why do Vancouver and Toronto have lower cap rates than other Canadian cities?

Lower cap rates reflect buyer confidence. In gateway markets, investors are pricing in stronger long-term rent growth, better liquidity (you can sell when you want to), and hard land supply constraints that protect values over time. Those factors justify paying more per dollar of income — meaning accepting a lower initial yield. Secondary markets don’t offer the same confidence, so buyers demand higher returns to compensate.

How does the Bank of Canada rate affect cap rates?

The relationship is real but not mechanical. When borrowing costs rise sharply, buyers need higher cap rates to maintain positive leverage — or they accept negative leverage and bet on appreciation. In practice, cap rate expansion during rate hike cycles lags behind interest rate moves because sellers resist repricing and transaction volumes fall before prices do. The BoC rate influences cap rates, but it’s not a direct one-for-one relationship.

What's the difference between a cap rate and a yield?

In Canadian commercial real estate, “yield” and “cap rate” are often used interchangeably when referring to the going-in cap rate (NOI ÷ purchase price). But technically, “yield” can mean the equity yield (your cash-on-cash return after debt service) or the total return (income plus appreciation) — both of which are different numbers. When someone quotes you a yield figure, always clarify: is that levered or unlevered? Before or after debt service?

Can a cap rate create negative leverage?

Yes, and it’s common right now in certain asset classes. If your property has a 4.0% cap rate and your 5-year commercial mortgage rate is 5.5%, every dollar you borrow reduces your cash-on-cash return. That’s negative leverage. It doesn’t automatically make the deal bad — many experienced investors accept negative leverage and underwrite for rent growth and appreciation. But you need to go in with eyes open, because the risk profile is fundamentally different from a positively leveraged deal.

How do lenders use cap rates in underwriting?

Two ways. First, they use the cap rate to validate the appraised value through the income approach — applying their own (often conservative) cap rate to their underwritten NOI to arrive at a value. Second, they stress-test income coverage using DSCR. Most lenders also apply an internal cap rate floor — even if the market is trading at 3.8%, their model might floor at 4.5% to test a value decline scenario. The higher the floor, the lower your appraised value, and the lower your maximum loan amount.

Are cap rates different for CMHC-insured vs. conventional financing?

Yes, and this catches investors off guard. CMHC uses its own prescribed NOI calculation methodology and maintains benchmark cap rates for each major Canadian market. These are applied independently of the appraiser’s cap rate selection and are deliberately conservative. CMHC’s underwriting cap rate is often higher than current market transaction cap rates — which produces a lower appraised value and a lower insured loan amount than a conventional lender might offer on the same property. Know this going in before you structure your deal around maximum CMHC proceeds.

Where can I find reliable Canadian cap rate data?

The most widely cited sources are CBRE’s Cap Rate Survey (published quarterly), Colliers’ Canada Cap Rate Report, JLL’s Canadian Market Outlook, and Altus Group’s data for institutional-grade assets. RealNet tracks transaction data. One important caveat: these sources primarily cover institutional-grade assets and larger transactions. Small private-market deals — the kind most individual investors are doing — are often not captured in published surveys. Actual cap rates for smaller assets can differ meaningfully from what the reports show.