Net Operating Income (NOI) Calculator for Commercial Property

Before financing, tax, or long-term plans come into play, every commercial property evaluation comes down to one basic question: What does it actually earn?

Net operating income (NOI) is your answer. It shows how much income a property produces from normal operations. In simple terms, NOI shows what a property earns before taking financing, tax, or ownership structure into account.

That clarity is why NOI sits at the centre of commercial building valuation, where income performance drives both pricing and lender confidence. NOI is especially useful when comparing commercial properties for sale, as operating costs and income stability can vary widely by asset type.

Before drilling into operating costs, many investors start with simpler price-to-income measures like gross rent multiplier to sense-check whether a property's asking price broadly aligns with its rental income.

Why Does Net Operating Income Matter?

NOI connects income, risk, and value.

Buyers, lenders, and valuers rely on NOI because it sits at the intersection of income strength, income stability, and value. It lets you compare different properties fairly, even when they vary by size, tenant mix, or ownership structure.

How Do You Calculate Net Operating Income?

NOI is calculated by subtracting operating expenses from gross operating income.

At its core, the net operating income formula is straightforward. The real work is classifying income and expenses correctly, so the result reflects how the property actually performs.

The basic formula is:

To calculate NOI in practice:

1. Identify gross operating income based on realistic, recurring revenue.
2. Deduct operating expenses required to run the building.
3. Exclude financing, tax, and capital costs to keep the figure consistent.

What is Included in NOI?

NOI focuses on property income and operating costs, not personal finances.

Net operating income only includes income and expenses that relate directly to operating the property. It is designed to show how the building itself performs, without being distorted by financing choices, tax position, or ownership structure.

To make those boundaries clear, the table below shows what is typically included and excluded in NOI calculations.

What Net Operating Income Includes vs. Excludes

Income line items such as rent, service charge recoveries, and ancillary income are often reviewed alongside rental yield to understand how operating income translates into return.

Expenses reflect the ongoing costs required to operate the building, including management fees, maintenance, insurance, and utilities paid by the owner. Depending on lease structure and recoverability, items such as ground rent and commercial property rates may also affect NOI, but only to the extent that those costs are ultimately borne by the owner.

How Does NOI Affect Property Value?

NOI is a key input in income-based valuation methods.

Most income-producing commercial property is valued based on how much reliable income it produces. When the level of risk is similar, buildings that generate more sustainable income are worth more, and buildings that generate less income are worth less.

That means higher NOI typically supports a higher property value, while lower NOI reduces value, even when headline rent looks attractive.

This relationship becomes clearer when you assess NOI alongside net initial yield and equivalent yield. Net initial yield shows what return a buyer is getting based on the property's income today. Equivalent yield goes a step further, reflecting how safe and sustainable that income looks over time, based on lease length, tenant strength, and future income expectations.

This is particularly relevant for income-driven assets, where lease length, vacancy, and operating costs have a direct impact on both NOI and value. Compare listings in your area to get a sense of how NOI changes across assets.

How Do Lenders Use NOI When Assessing Affordability?

Lenders use NOI to judge whether income can support borrowing.

Lenders focus on NOI because it reflects income available from the building itself. A stable, well-supported NOI increases a lender's confidence the building operator can make their loan payments even if conditions change. Lenders tend to scrutinise NOI more closely for multi-let commercial properties, where income stability depends on tenant mix, lease structure, and cost recovery.

In more complex acquisitions, lenders may also test NOI through a discounted cash flow model to assess longer-term income resilience.

How Can You Improve Net Operating Income?

Improving NOI usually comes from small operational changes, not large rent jumps.

In practice, this often means focusing on cost recovery, lease structure, and day-to-day efficiency rather than relying on headline rent growth. Common improvements include:

• Reviewing service charge budgets to ensure recoverable costs are passed through correctly.
• Tightening property management and maintenance processes to reduce avoidable spend.
• Reassessing utilities, insurance, and supplier contracts.
• Aligning lease terms so responsibilities for repairs and running costs sit clearly with tenants.

When comparing commercial real estate for sale, many investors compare NOI across different properties to see how operational decisions affect income. This may involve reviewing lease structure, cost recovery, and the timing of rent reviews, particularly when planning to invest in commercial property for the long term.

For example, say you were considering two properties: an office building for sale in London and a similar asset in Birmingham. The London office commands higher rents and has longer-term tenants but also comes with higher operating costs. Headline rent for the Birmingham asset might be lower, but you identify efficiency improvements that can lead to higher cost recovery. NOI helps you compare the two properties on an even playing field and decide which is better for your goals.

Why Improving NOI Matters Even If You Are Not Selling

NOI improvements create flexibility, not just value.

Stronger NOI can make refinancing easier, reduce pressure during lease renewals, and provide resilience during weaker periods. Over time, it also gives owners more flexibility, as buyers and lenders alike base property value and borrowing power largely on how reliable the asset's income is.

Even small operational improvements can compound over time, which is why NOI remains a useful reference point long after a purchase is complete. It helps owners stay focused on the parts of performance they can actively influence, rather than factors outside their control.

Frequently Asked Questions About Net Operating Income

What is the difference between net operating income and cash flow?

Net operating income measures property performance before financing, tax, and capital costs are applied. Cash flow shows what remains after those items are taken into account, reflecting the outcome for a specific owner rather than the property itself.

How do FRI leases affect net operating income?

A full repairing and insuring lease typically results in higher NOI because responsibility for repairs, maintenance, and insurance sits with the tenant rather than the owner. As a result, an FRI-let property will often show stronger NOI than a landlord-repairing building with similar rental income, because the FRI asset comes with lower ongoing operating costs.

Should business rates be included in NOI?

Business rates are only included if they are paid by the owner and not fully recoverable from tenants. If tenants pay rates directly, they do not affect NOI.

How does vacancy affect net operating income?

Vacancy reduces NOI by lowering income, even as certain operating costs continue regardless of occupancy. For this reason, NOI is often calculated using stabilised occupancy levels.

Is net operating income used for owner-occupied commercial property?

Yes. For owner-occupied buildings, NOI is typically used as a reference point to assess affordability, alternative use, or resale value based on market rent.