8 Key Performance Indicators That Drive Commercial Real Estate Profits

Real Estate Investing 101
Yannik Cudjoe-Virgil

8 Key Performance Indicators That Drive Commercial Real Estate Profits

When tracking the performance of a real estate investment, investors and asset managers use high-level quantitative metrics or key performance indicators (KPIs) as a compass for determining whether a property’s performance is in line with the acquisition projections and business plan. Examples of these indicators include expense ratios, occupancy rates, and leasing conversions, etc. Asset managers and investors generally use this data to optimize operations and to ultimately improve the trajectory of success of their project.

If you want to increase asset performance and profitability, here are eight important KPIs that will help you do so:

Revenue Growth – Income generated by rent increases, or the addition of new amenities and services offered to the tenants. A good asset manager should always be on the lookout for new opportunities arising from daily operations and the latest market trends in apartment living.

Expense Ratio – The percentage of income that goes towards the property’s operating expenses. Expense Ratios differ from property to property, and market to market. Having a high expense ratio can erode your return on investment. Asset managers generally aim to reduce this by drastically cutting unnecessary expenses.

Delinquency – This indicator shows the percentage of tenants that owe back rent or other fees. Your asset management team should have a plan of action for collecting delinquent payments.

Occupancy Rate – The percentage of units that are rented. This indicator is directly related to the income generated by the property – fewer vacant apartments mean higher income. The occupancy rate can be impacted by a number of factors including the condition and location of the complex, the experience of the asset management team and its marketing strategy for the property.

Turnover Time – This is the period between one tenant moving out and another one renting the same apartment. The unit generates no rent income during turnover, thus negatively impacting the net rental income of the property.

Leasing Conversions – This indicator measures the number of incoming leads and how many move successfully through the sales funnel from appointments and showings, to applications and signed leases. This is a very important metric because it is a possible indicator of how well your property manager can lease the property. 

Renewal Rate – The percentage of existing tenants that choose to renew their lease for another term. This metric can be used to gauge resident satisfaction and how rental rates compare against similar properties. Tenant retention is extremely important with regards to maintaining a healthy occupancy on the property.

Profit and Loss – The profit and loss (or Income Statement) summarizes the actual expenses and income of the property. By monitoring this monthly, one should see the variances against budgeted numbers for each line item. This can help asset managers spot opportunities for revenue growth and expense cuts.

In conclusion, reviewing these indicators on a regular basis will help you ensure the property you invested in is managed well and will continue delivering positive gains.

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