How to Use Data to Amplify Net Operating Income (NOI)
Net operating income (NOI), or the money leftover when property expenses have been deducted from revenue, is one of, if not the single, most important measurements for real estate owners. For years, the only way to increase net operating income was to decrease expenses or increase rent. But what if you can use data to affect net operating income as well?
With all of the coverage surrounding technology and its impact on commercial real estate, most owners know that embracing digital change is necessary, but are unsure of where to start or how it can play a practical role in the pursuit of NOI. To understand the value of data management, it’s important to break down the factors that it influences. There are many factors, but we will highlight two here:
1. Finding operational efficiencies through data-driven insights
Many property teams and owners have historically relied on gut feelings to find areas to reduce expenses within their business. But counting on gut feelings is not the best way to make decisions that will increase operational efficiencies. Data gives owners insight into not only what is going on in their portfolios, but why these things might be happening.
For example, it’s pretty easy to see when NOI drops, but it might be harder to realize that it dropped because vacancy was up in 2 large properties. Using readily available data combining property management with financial results data could quickly identify that. And combining that data with customer surveys and online reviews might further highlight that by improving turn time from when a unit is vacated to when it is “rent ready” could more than overcome the drop in NOI and actually push it forward. Further combining that data with a benchmark for what similar properties see in time to rent-ready could suggest just how much of an improvement could be expected reasonably on the property.
Deciding which appliance packages will yield the greatest ROI before a property renovation is another big decision that should not be left up to gut feel. Many property teams would look at the face cost of different packages to help make this decision. But using data like historical repair and maintenance costs to understand the total cost of ownership of the various appliance package can give owners a better idea of which appliances they should invest in to yield the best ROI.
2. Repurposing assets with tenant behavioral information
Commercial real estate owners are feeling the need to make more of their decisions with consumer-driven principles. Just as many of the world’s most successful companies like Amazon and Apple have used customer data, i.e. customer journeys, purchase information, and a host of behavioral idiosyncrasies, to drive product development and pricing strategies, property owners can harness the power of tenant behavioral data to make capital investment decisions at the property level. Using consumer data to make better decisions is instrumental in positively impacting the bottom line. According to Gallup, organizations that leverage customer behavioral insights outperform peers by 85 percent in sales growth and more than 25 percent in gross margin.
Every property has valuable tenant data that can be leveraged to repurpose the physical space to adapt to changing consumer preferences or aspirational tenant mix that generates higher lease rates.
For example, if data on reviews from Facebook can be quickly collected and analyzed, you might find a pattern of negative sentiments regarding parking. Armed with this information, decision-makers could add assigned street parking to improve customer satisfaction greatly. Or perhaps payroll data can show changing demographics at a property that might suggest that adding a dog walking or childcare amenity could help to drive up rent.
To optimize operations and maximize the value data and real-time information can offer property teams, commercial real estate owners need to move from a place of backwards-looking measurement to one of decision-focused management. All remembering that reporting for reporting’s sake is less important than the decisions those reports enable to improve profits.
Download our White Paper: “3 Ways the Top CRE Firms Are Boosting NOI” to learn how top CRE firms use technology and place data at the core of their organizational strategy to make informed business decisions, drive operational improvements, increase financial health, and more.
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