NOI
NOI stands for Net Operating Income and is the ongoing operating surplus a commercial property generates before capital costs, tax and depreciation. You calculate NOI as operating income (contract rent plus additional income from parking, storage, antenna space and similar) minus operating costs (management, maintenance, property tax, insurance, common areas, vacancy loss). NOI is the central profitability KPI in the industry and the actual numerator when buyers assess the price of a building.
It is important to separate NOI from contract rent and from cash flow after finance. Contract rent shows what the tenants are due to pay on paper; NOI subtracts what it actually costs to run the building. Cash flow after finance (cash-on-cash) goes one step further and also subtracts interest, principal payments and tax, but then you have left the profitability of the property itself and moved on to the investor's equity. NOI sits in between and is deliberately neutral to capital structure: two investors who finance the same building differently have the same NOI, but a different bottom line. This neutrality is what makes NOI comparable across owners, and it is the precondition for yield and capitalisation rate to make sense.
Which costs are subtracted varies between analysts, and you should always check the definition in each individual report. The standard items are ongoing management costs, normalised maintenance, property tax, insurance and a portion for "vacancy and collection loss" covering expected vacancy. Larger reinvestments (CAPEX), tenant improvements and tenant fit-outs are kept outside NOI; they are treated separately in a discounted cash flow model. Depreciation is also kept outside: NOI is a cash figure, not an accounting result.
In a bare-house agreement (triple-net), the tenant carries most of the operation, maintenance and insurance. NOI then comes close to the contract rent, and the cash flow from the property becomes more predictable. At the other end, office buildings with short leases and large common areas have an NOI well below gross rent, because the landlord covers more of the operation, energy and maintenance itself. The ratio between gross rent and NOI (the "operating expense ratio") in Norway typically sits between 15% and 30%, depending on segment and lease structure.
NOI is also the basis for most valuation bridges: market value ≈ NOI / yield, and loan terms are often expressed as DSCR (Debt Service Coverage Ratio) = NOI / interest costs plus principal payments. Banks typically require a DSCR above 1.3 to 1.5 for new loans on commercial property. A small change in NOI therefore has a large effect on both value and borrowing capacity.
In Placepoint you can build up the NOI basis by pulling contract rent and tenants from the property panel and adding the municipal property tax for the building in question, before you normalise operation and maintenance yourself using the model your business applies.
How this looks in Placepoint
In Placepoint you find this in Property panel, Units and Tenants:
From Placepoint's glossary: NOI
More information: Eiendom Norge: Market Reports, Newsec: Property Asset Management, Store norske leksikon: driftsresultat
English: Net Operating Income (NOI).
Frequently asked questions
What is the difference between NOI and contract rent?
Contract rent is what the tenants are due to pay under the agreements. NOI is contract rent plus additional income, minus all ongoing operating costs (management, maintenance, property tax, insurance, vacancy loss). NOI is the operating surplus the building actually generates.
What is included in the operating costs that are subtracted?
The standard items are management, normalised maintenance, property tax, insurance, energy and the service charges the landlord is not reimbursed for, plus a deduction for expected vacancy. CAPEX and tenant fit-outs are kept outside.
Why is NOI used as the main metric?
NOI is neutral to capital structure: it tells you what the property itself generates, regardless of how it is financed. That makes it comparable between owners, and it is the basis for both yield-based valuations and the banks' DSCR requirements.
Is NOI the same as EBITDA?
The terms are similar, but EBITDA is an accounting term for a whole company, while NOI is tied to a property and uses normalised rather than accrued figures. NOI also excludes administrative costs at company level.