How to calculate stabilized NOI
The arithmetic takes ten seconds. What makes the figure worth anything is whether it says which space it assumes you leased — and most published versions do not.
The calculation
Sample inputs
- Building area
- 184,500 SF
- Leased
- 162,000 SF
- Vacant
- 22,500 SF
- In-place NOI
- $1,209,604
- Market rent, vacant space
- $7.50/SF
- Purchase price
- $16,750,000
A 184,500 SF industrial building, 87.8% leased, with one 22,500 SF suite dark. In-place NOI is what the three signed leases produce after real operating expenses.
| NOI | Cap rate on $16,750,000 | |
|---|---|---|
| In-place NOI | $1,209,604 | 7.222% |
| Plus 22,500 SF at $7.50 | +$168,750 | — |
| Stabilized NOI | $1,378,354 | 8.229% |
22,500 SF at $7.50 adds $168,750. Stabilized NOI is $1,378,354, and the cap rate on the same price goes from 7.222% to 8.229% — a hundred basis points, from one empty suite.
That is the whole calculation. Now the part that matters.
A stabilized NOI is only as good as the vacancy it priced
The figure above assumes one specific thing: that 22,500 square feet gets let at $7.50. If that assumption is stated, a reader can disagree with it. If it is not, the number is unfalsifiable.
So DealWise refuses to produce one when the vacancy is unpriced. Give it an empty suite with no market rent and it returns nothing at all rather than quietly handing back the in-place NOI relabelled. There is no stabilized figure to give, and the honest output for that is silence.
When only part of the vacancy is priced, it reports the rest. Price 12,000 of the 22,500 feet and you get an NOI of $1,299,604 and a statement that 10,500 square feet were not included. A tool that hid that second number would be publishing a stabilized NOI for a building still partly empty inside its own model.
Why sellers like this number, and what to do about it
A stabilized cap rate is higher than an in-place one by construction. On this building the difference is a full point, and no property has changed hands or improved to produce it.
That is not deception — showing an asset at stabilization is what a pro forma is for. It becomes a problem when the asking price is justified by the stabilized figure, because every input to that figure is your risk, not the seller’s achievement: you have to find the tenant, at that rent, and pay the improvements and commissions to get them in.
Value the building on in-place income and treat stabilized as the upside case you are being asked to buy. Then check whether the price already contains it — which is what the stated versus derived check exists to show.
Questions people ask
What is stabilized NOI?
What a property would earn once it reaches a normal, sustainable level of occupancy. In-place NOI is what the rent roll produces today; stabilized NOI is what it produces after the empty space is let at market rents. The gap between the two is frequently the whole reason a deal is interesting.
How do you calculate it?
Take the in-place NOI and add the rent the vacant space would produce at market, less any expenses that come with occupying it. The arithmetic is trivial. What makes the number honest or dishonest is whether every vacant square foot actually carries a market rent somebody has committed to.
What is the most common mistake?
Presenting a stabilized figure without saying which space it assumes is leased. A number labelled 'stabilized' for a building where part of the vacancy was never priced is not a forecast, it is a gap wearing a label — and the reader has no way to see it.
Should stabilized NOI include the cost of getting there?
The NOI itself does not — it is an income figure, and downtime, free rent, improvement allowances and commissions are not operating expenses. But they are real and they land before the income does, which is why a stabilized NOI is a destination rather than a plan. Model the path separately.
Which figure should I value the building on?
In-place, then look at stabilized as the upside case. A price justified only by stabilized NOI is a price that assumes you complete the lease-up on time, at the rent you assumed, having spent the capital it takes. Those are your risks and they should not be priced as though they were the seller's achievements.
Keep reading
What is NOI?
The in-place figure this starts from.
What is cap rate?
What a one-point NOI change does to value.
Stated vs derived check
When a seller's cap rate is computed on the stabilized figure.
How to read an OM
Where a stabilized figure usually turns up.
Value an income stream
Either figure, at a cap rate you choose. Free tool.
Rollover & re-leasing
The cost of the path to stabilization.
Get both figures, with the assumptions named.
Upload the documents and DealWise builds the rent roll, derives in-place NOI, and gives you a stabilized figure only when the vacancy has actually been priced — reporting the square feet it did not include. Free plan, no credit card.