Cap rate (capitalization rate)

Cap rate is the ratio of a property's annual net operating income to its market value or acquisition price, expressed as a percentage, used by investors to compare returns and risk across data center real estate deals. A lower cap rate means investors accept a lower current yield in exchange for perceived lower risk or stronger growth; a higher cap rate signals higher risk or a cheaper entry price. Stabilized, long-leased hyperscale colocation assets in core US and European markets have compressed to roughly 5-6% as of 2026, down from 7-8% a decade ago, as institutional and infrastructure capital has flooded into digital infrastructure. Shorter-lease retail colocation and emerging-market assets typically trade at 7-9%+ to compensate for tenant turnover, currency and country risk. Falling cap rates below development yield-on-cost are what make new-build data centers attractive to sell once leased and stabilized, fueling the wave of colocation portfolio M&A.