Real estate metrics allow you to measure the performance of your corporate properties and find ways to improve. As a result, you can boost investment revenue and take your business to the next level.
Below, we share critical metrics to help you make more informed real estate investments. Let’s dive in.
1. Capitalization Rate
The capitalization rate (cap rate) measures real estate’s expected return on investment over a year. Consider it your annual ROI, assuming you sell the property in cash. To calculate the capitalization rate of your real estate investment:
Cap Rate = Net Operating Income ÷ Current market value
Net operating income is the anticipated annual income from the property, while current market value is the present-day value of your real estate. In general, the higher the rate, the greater the risk and possible returns.
2. Tenant Turnover
Tenant turnover shows the rate at which tenants are vacating your property. This key performance indicator is especially critical if you own many real estate properties. A low turnover rate means tenants are staying in your property. Here’s how to calculate the turnover rate for your real estate:
Turnover Rate = (Number of Tenants Leaving ÷ Total Number of Tenants)× 100%
3. Space Utilization
This real estate investment KPI measures a property’s occupancy divided by capacity. Let’s say your business premise carries a total of 200 people but is only occupied by 150 tenants. Your space utilization rate is 150/200= ¾.
To accurately measure space utilization in your business, you need sensors that integrate with space management software like FM: Systems. With space utilization software, you can track and manage every aspect of your physical space inventory, including:
- Sitting arrangement
- Your organization’s space
- How space is utilized in your company
- Forecasting how much property you’ll need in the future
As a result, you enjoy triple benefits:
- Get a real picture of space utilization
- Reduce costs associated with unused, underused, and under-performing space
- Data-based future space planning
4. Energy and Sustainability
Measuring your real estate’s overall energy consumption is crucial to meeting sustainability standards, cutting energy costs, and reducing your carbon footprint. Powerful technology exists for environmental monitoring in your building.
The technology comes with a multi-function sensor that detects temperature, noise, light, air quality, and pressure. This enables you to control energy consumption and improve the workspace environment.
5. Total Occupancy Costs
Total occupancy costs refer to gross costs for renting real estate plus other operating costs. Other expenses covered under this metric include:
- Taxes
- Property and general liability insurance
- Utilities
- Any additional costs for serving tenants
You should calculate your total occupancy costs accurately. That way, you know what exactly you’re spending on real estate to help you calculate your ROI.
6. Net Operating Income (NOI)
NOI simply shows the revenue you generate from a real estate investment. To get your net operating income, you subtract operating expenses from your total revenue.
Net Operating Income = Total Revenue – Operating expenses
7. Operating Expense Ratio (OER)
The operating expense ratio measures the costs to operate real estate against income from rent. You calculate it by subtracting depreciation from the property’s operating expense. Then, divide the results by the property’s total operating income.
OER = (Operating Expense – Depreciation)÷ Gross operating income
This ratio can be used to compare the expenses of similar real estate before making a buying decision. Ideally, OER usually falls between 60 to 80%. But the lower the OER, the better.
8. Cost per Square Foot
The costs per square foot of your rent, employees, and utilities give a clear picture of your real estate costs and the return on investment. However, comparing these numbers with those of other businesses can be difficult.
And that’s where industry stats are useful. The general rule for an average company is 3-30-300. The rule suggests that an average organization’s cost per square foot per year is $3 in utilities, $30 in rent, and $300 in payroll.
9. The Loan to Value (LTV) Ratio
This KPI measures your leverage on a property. It compares the amount of mortgage with real estate’s appraised value. The mortgage amount divided by a property’s appraised value gives the LTV ratio.
What equity do you hold in particular real estate? What properties in your real estate portfolio account for debt? LTV ratio provides answers to these questions.
10. Lease Administration
This is among the most important KPIs in real estate. Business leaders require insights when overseeing the lead agreement process. These insights include:
- Inactive and active leases
- Upcoming lease events
- Lease details
Good lease insights enable portfolio managers to handle issues and set expectations about upcoming requirements.
11. Internal Rate of Return (IRR)
The internal rate of return measures the profitability of potential real estate investments. A high IRR makes an investment opportunity more desirable. It’s the lowest acceptable level of return that justifies a real estate investment.
IRR estimates the long-term return on investment and goes beyond buying price and net operating income.
12. Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio measures the available operating income to service debt against your actual debt. Here’s the DSCR formula:
DSCR = Net operating income ÷ Debt payments
Depending on your business, debt payments may be yearly, quarterly, or monthly.
13. Equity to Value Ratio
Equity to value ratio measures your equity in a particular property against its appraised value. In short, the ratio establishes how much leverage you have in a real estate investment. Use this formula to calculate equity to value ratio:
Equity to value ratio = Total property equity ÷ Total Property Value
14. Average Rent Price Per Property
This real estate KPI shows how average monthly rent compares with annual or quarterly changes. What’s the rent amount for your units? How does that price compare to the previous three months or twelve months?
Average Rent Price Per Property = Gross Monthly Revenue ÷ Total Number of Properties
15. Space per Corporate Employee
Space per corporate employee measures the total space available for leasing against the number of employees in a corporation. You can use the metric to compare your business with competitors regarding space management.
Space per Corporate Employee = Total Leasable space ÷ Corporate headcount
Optimize Your Business’s Real Estate Portfolio
FM: Systems is a powerhouse of workplace management solutions that offer actionable insights for optimizing your real estate portfolio. Our software focuses on several things, including:
- Space and occupancy
- Assets and maintenance
- Real estate and strategic planning
- Projects and sustainability
FM: Systems gives you insight into how your company uses space, how to enhance efficiency, and create a better workplace environment for employees. Schedule a demo today to learn more about how we can help with your corporate resize.
