How do you compare the return on a serviced apartment in Southsea with a commercial unit in Southampton? They have different cost structures, different income streams, and different risk profiles. But there is one number that works for both: Net Operating Income yield, or NOI yield.
NOI yield strips everything back to the building’s performance as a business. Net Operating Income is your gross revenue minus all your operating expenses, but it excludes mortgage payments, depreciation, and tax. It answers the question: how well does this building generate income, regardless of how I finance it?
For a serviced accommodation property, your NOI calculation includes cleaning costs, platform commissions, utilities, linen, maintenance, and management. For a commercial property, it includes service charges, insurance, ground rent, and managing agent fees. The costs are different, but the metric is the same.
A well-run SA property might have an NOI yield of 8% to 12%. A good commercial investment might deliver 6% to 9%. The difference reflects the different risk profiles: SA has higher operational costs and more active management, but potentially higher returns. Commercial has lower costs and longer leases, but lower yields.
The beauty of NOI yield is that it lets you compare apples to oranges. If your SA property is delivering 6% NOI yield, it is underperforming compared to a commercial property that could deliver 7% with less work. That comparison might change your strategy.
The formula
NOI Yield (%) = (Net Operating Income / Property Value) × 100
Why this matters
NOI yield is your universal comparison tool. Use it to evaluate any income-producing property regardless of type. It strips away financing and tax and focuses on the building’s core income performance.
Property maths is not optional. If you want someone to run the numbers with you, Xelox Properties can help. We cover Portsmouth, Hampshire, and the South Coast.