Commercial Real Estate Metrics Explained
A complete reference guide to every metric used in commercial real estate analysis — what each one measures, how to calculate it, and when it matters most.
Why CRE metrics matter
Commercial real estate is a numbers-driven business. Every investment decision — whether to buy, sell, hold, refinance, or pass — rests on a set of financial metrics that quantify the property’s performance, risk, and return potential. Unlike residential real estate, where comparable sales and personal affordability dominate, commercial property valuation is fundamentally an income and return calculation.
No single metric tells the whole story. Cap rate measures unlevered return. DSCR measures financability. Cash-on-cash measures your actual equity yield. IRR captures total return over time. Experienced investors evaluate these metrics together — and know which ones matter most for their specific strategy and deal type.
This guide covers every metric you’ll encounter when analyzing, underwriting, or discussing a commercial real estate deal.
Income metrics
Gross Potential Rent (GPR)
Total Rent if 100% Occupied at Contract Rates
The maximum rental income the property could produce if every suite were occupied and paying their full contractual rent. GPR is the theoretical ceiling — actual income is always lower due to vacancy, concessions, and collection losses. It's the starting point for every income analysis.
Effective Gross Income (EGI)
GPR − Vacancy & Credit Loss + Other Income
Actual gross income after subtracting a realistic vacancy and credit loss factor (typically 5–10%) and adding any other income sources like parking, signage, storage, or late fees. EGI represents the realistic income the property will collect — not the theoretical maximum.
Net Operating Income (NOI)
EGI − Operating Expenses
The property's operating profit before debt service, capital expenditures, and income taxes. NOI is the single most important number in commercial real estate — it drives cap rate, DSCR, valuation, and cash flow projections. Operating expenses include property taxes, insurance, CAM, management fees, and reserves, but exclude debt service and depreciation.
Vacancy Rate
Vacant SF ÷ Total Rentable SF
The percentage of the property's rentable square footage that is currently unoccupied. Expressed as either physical vacancy (actual empty space) or economic vacancy (which also accounts for tenants not paying or receiving free rent). Lenders typically underwrite a normalized vacancy factor regardless of current occupancy.
Return metrics
Capitalization Rate (Cap Rate)
NOI ÷ Purchase Price (or Value)
The most widely quoted metric in commercial real estate. Cap rate measures the unlevered annual return as if you paid all cash. A 7% cap rate means the property produces $0.07 of NOI for every $1.00 of value. Lower cap rates indicate lower risk/return (prime locations, credit tenants); higher cap rates indicate higher risk/return. Cap rate does not account for financing — it evaluates the property itself.
Cash-on-Cash Return
Annual Pre-Tax Cash Flow ÷ Total Equity Invested
Measures the annual yield on your actual invested dollars — after debt service. Unlike cap rate, cash-on-cash reflects the impact of leverage. If the property's yield exceeds the cost of debt (positive leverage), cash-on-cash will be higher than cap rate. Most investors target 6–10% cash-on-cash on stabilized acquisitions.
Internal Rate of Return (IRR)
Discount Rate That Sets NPV of All Cash Flows to Zero
The most comprehensive return metric — it captures all cash flows over the entire holding period, including operating cash flow, principal paydown, and sale proceeds, discounted for the time value of money. IRR is the annualized rate of return that makes the net present value of all future cash flows equal to the initial investment. Institutional investors typically target 12–20% IRR depending on risk profile.
Equity Multiple
Total Distributions ÷ Total Equity Invested
How many times you get your money back over the life of the investment. A 2.0x equity multiple means for every $1.00 invested, you received $2.00 back in total (your original capital plus $1.00 of profit). Unlike IRR, the equity multiple doesn't account for timing — a 2.0x over 3 years is much better than 2.0x over 10 years.
Price Per Square Foot
Purchase Price ÷ Total Rentable SF
A quick comparability metric that normalizes price across buildings of different sizes. Useful for comparing properties within the same asset class and market. An industrial building at $150/SF is very different from one at $250/SF — but the metric only makes sense when compared against local comps. It doesn't account for income, condition, or lease quality.
Financing & debt metrics
Debt Service Coverage Ratio (DSCR)
NOI ÷ Annual Debt Service
The primary metric lenders use to determine loan feasibility. A DSCR of 1.25x means the property generates 25% more income than needed to cover the mortgage payment. Most lenders require 1.20x–1.35x minimum depending on asset class. DSCR determines the maximum loan amount — if the property can't cover the debt at the required ratio, the lender reduces proceeds regardless of LTV.
Loan-to-Value (LTV)
Loan Amount ÷ Appraised Value
Measures leverage — what percentage of the property's value is financed with debt. Typical commercial LTV ranges from 60% to 80%. Higher LTV means more leverage (higher returns but more risk). LTV and DSCR work together — lenders approve the loan at the lower of the two constraints.
Debt Yield
NOI ÷ Loan Amount
Measures the property's income return on the total debt amount, normalizing for different interest rates and amortization schedules. A 10% debt yield means the property generates $0.10 of NOI for every $1.00 of debt. Some CMBS lenders use debt yield as a primary sizing metric — typically requiring 8–10% minimum.
Mortgage Constant
Annual Debt Service ÷ Loan Amount
The percentage of the loan balance that is paid annually in debt service. Useful for quickly comparing the cost of different loan structures. If the mortgage constant exceeds the cap rate, you have negative leverage — the debt is costing more than the property earns, reducing your cash-on-cash return below the cap rate.
Lease & property metrics
Weighted Average Lease Term (WALT)
Σ (Remaining Lease Term × Annual Rent) ÷ Total Annual Rent
The average remaining lease duration weighted by each tenant's rent contribution. A higher WALT indicates more income stability and less near-term rollover risk. Industrial properties with credit tenants on 10-year NNN leases might have a 7+ year WALT, while multi-tenant retail might average 2–4 years. WALT directly affects property value and lender terms.
Occupancy Rate
Occupied SF ÷ Total Rentable SF
The percentage of the building that is currently leased to tenants. Physical occupancy measures space under lease; economic occupancy factors in whether tenants are actually paying. A property can be 100% physically occupied but 90% economically occupied if some tenants are in free rent periods or delinquent on payments.
Rent Per Square Foot
Annual Rent ÷ Suite SF
The rental rate expressed per square foot, typically on an annual basis for commercial properties. Used to compare tenant rates against market rents and across suites within the same building. When comparing rent per SF between NNN and gross leases, remember that NNN rent doesn't include operating expenses — making it appear lower even though the effective cost to the tenant may be comparable.
Operating Expense Ratio
Operating Expenses ÷ EGI
What percentage of the property's income goes to operating costs. Lower ratios indicate more efficient operations. NNN properties have very low expense ratios (5–15%) because tenants pay most expenses. Gross lease properties typically run 35–55% expense ratios. Ratios significantly outside the norm for the asset class warrant investigation.
How DealWise AI helps
DealWise AI calculates NOI, cap rate, DSCR, price/SF, occupancy and cash flow projections automatically from your deal inputs — rent roll, operating expenses, and financing structure. No manual formulas, no spreadsheet errors. Adjust any input and watch them update in real time, so you can see how changes cascade through the entire deal model.
Quick reference: which metric answers which question?
| Question You’re Asking | Metric to Use |
|---|---|
| What's the property worth relative to its income? | Cap Rate |
| What return am I earning on my actual cash invested? | Cash-on-Cash Return |
| Can the property support this loan amount? | DSCR |
| How much can I borrow relative to the value? | LTV |
| What's my total return over the hold period? | IRR |
| How many times do I get my money back? | Equity Multiple |
| How much income cushion exists above the debt? | DSCR |
| Is leverage helping or hurting my returns? | Mortgage Constant vs. Cap Rate |
| How stable is the income stream? | WALT + Occupancy Rate |
| Is this property operating efficiently? | Operating Expense Ratio |
| How does this property compare to similar ones? | Price/SF + Cap Rate + Rent/SF |
Frequently asked questions
Which CRE metric is most important?
It depends on your role. Lenders care most about DSCR and LTV. Equity investors focus on cash-on-cash and IRR. Brokers use cap rate for pricing. Property managers track occupancy and expense ratios. The best analysis uses all relevant metrics together — no single number tells the whole story.
How do I benchmark these metrics for my market?
Compare against recent comparable sales (for cap rate and price/SF), market surveys from firms like CBRE, JLL, or Cushman & Wakefield (for vacancy and rent/SF), and your lender's requirements (for DSCR and LTV). Local market context matters enormously — a 7% cap rate means different things in Manhattan vs. a suburban industrial park.
Do these metrics apply to all commercial property types?
The core metrics (NOI, cap rate, DSCR, cash-on-cash) apply universally across industrial, retail, office, and multifamily. However, some asset-specific metrics exist: multifamily uses per-unit pricing, hotels use RevPAR and occupancy by room, and self-storage uses per-SF or per-unit revenue. The fundamentals are the same — income minus expenses equals NOI — but the industry-specific language varies.
What metrics do lenders care about most?
Commercial lenders focus on three constraints: DSCR (minimum 1.20x–1.35x), LTV (maximum 65%–80%), and debt yield (minimum 8%–10%). The loan is sized at the most restrictive of these three. DSCR is typically the binding constraint on stabilized deals, while LTV is often the binding constraint on lower cap rate acquisitions.
How does DealWise AI calculate these metrics?
It derives them from the data you enter: property details (purchase price, square footage), rent roll (tenant details, lease terms, rental rates), operating expenses, and financing assumptions. NOI comes off the rent roll, and cap rate, DSCR, price/SF, occupancy, WALT, cash-on-cash, levered IRR and the cash flow projection come off that — all in real time as you adjust inputs. Not every metric defined on this page is one the deal model produces. Equity multiple is — the free IRR calculator returns it alongside levered IRR — but LTV, debt yield and the mortgage constant are defined here as reference because lenders and brokers quote them, and the deal model does not compute them.
Final thoughts
Commercial real estate metrics are the language of the industry. Fluency in these metrics lets you evaluate deals quickly, communicate effectively with lenders and partners, and make confident investment decisions backed by data rather than intuition.
DealWise AI calculates the ones that carry the decision — NOI, cap rate, DSCR, price/SF, occupancy, WALT, cash-on-cash, levered IRR and the full cash flow projection — automatically from your rent roll, operating expenses and loan terms. The rest of this page is reference: it is here so you can read someone else’s numbers, not because the product prints all seventeen.
Related guides
What is cap rate?
Deep dive into the most quoted CRE metric.
What is NOI?
The income number that drives every metric.
What is DSCR?
The metric that determines your financing.
What is cash on cash return?
Measuring your actual equity yield.
CRE glossary
Every term, grouped by the question it answers, defined the way a deal uses it.
WALT explained
Two buildings can publish the same 3.1 years and be nothing alike.
What is a rent roll?
The register every one of these metrics is computed from.
How to analyze a CRE deal
Put all these metrics to work on a real deal.
Related calculators
Three of these metrics have a free calculator on this site — no sign-up, no deal required.
IRR calculator
Levered IRR and equity multiple from the equity, the cash flow and the exit.
Cap rate calculator
Cap rate and NOI from rent, operating expenses and purchase price.
DSCR calculator
Debt service coverage from NOI, and the maximum loan it supports.
Property value calculator
Price per SF for building and land, plus annual rent potential.
Seventeen metrics, one set of inputs.
DealWise AI derives NOI from your rent roll — then cap rate, DSCR and the full cash flow projection from there. Free to start.