Cap rate is the headline metric for institutional real estate underwriting. It's the unlevered yield: NOI as a percentage of the all-in acquisition cost. Cap rate compression (rates getting lower) reflects more capital chasing the asset class; cap rate expansion (going higher) reflects investor caution.
For coliving, cap rate is meaningful but less universally applied than in traditional multifamily. Many coliving deals are master-leased rather than owned, which makes the asset/operator distinction critical. When operators report 'cap rate', clarify whether it's on the property or on the operator's lease.
Coliving cap rate ranges (Q1 2026): Singapore 3.5-5.0%, London H16 4.5-6.0%, NYC 4.5-5.5%, Berlin 5.5-6.5%, Lisbon 5.5-7.0%, Austin 6.0-7.5%, Bangalore 9-13%. Compression of ~150bps since 2018 across institutional-grade Western markets reflects how the asset class matured. The 100-200bps cap rate premium over equivalent multifamily compensates for: (a) operator concentration risk, if the operator fails, the property doesn't trade as conventional residential; (b) regulatory tail risk, Berlin Zweckentfremdungsverbot and similar rules can compress coliving values overnight; (c) opex volatility, coliving's 60-75% opex ratios are more sensitive to occupancy than traditional multifamily's 35-45%. Properties trading inside the multifamily cap rate are typically purpose-built H16-style schemes with institutional-grade operators and proven 18+ month performance.
Formula
Cap Rate = Annual NOI ÷ Property Purchase Price
Worked example: Property: €5M purchase price, €350,000 annual NOI. Cap rate = €350,000 ÷ €5M = 7.0%. If interest rates rise and the buyer pool now requires 8.5% cap rate, the same NOI valuation drops to €4.12M (~17% value haircut without operational change).
In the field
Lisbon coliving cap rates: 5.5-7.0% stabilized. London H16 schemes: 4.5-6.0%. Bangalore coliving: 9-13% (emerging-market premium). Cap rate compression in the asset class globally has been ~150bps since 2018 as institutional capital has scaled in.
Common pitfalls
- ×Quoting 'gross cap rate' (revenue-based) rather than NOI cap rate, meaningless for valuation.
- ×Comparing master-lease 'yields' against ownership cap rates, they're structurally different (one includes property risk, one doesn't).
- ×Underwriting at unrealistically low cap rates because that's what last year's comparable trades printed at.
- ×Using going-in cap rate without modelling exit cap rate expansion in the IRR.