Real Estate Valuation Terms
Key terms of Real Estate Valuation to understand
Net Operating Income (NOI)
What is Net Operating Income (NOI)
Property's annual profitability calculated as gross rental income minus vacancy losses and operating expenses (excluding debt service and capital items). Primary metric for valuing income-producing commercial properties across all asset classes.
Cap Rate (Capitalization Rate)
What is a Cap Rate (Capitalization Rate)
Cap Rate is a core real estate metric that measures a property’s investment return by dividing its Net Operating Income (NOI) by its current market value. Investors use the cap rate to compare asset performance, evaluate pricing, and understand risk levels across commercial properties.
Market Rent
What is Market Rent
Market Rent is the estimated rental value a property can achieve under current market conditions, based on comparable leases, location, demand, and asset quality. It reflects what tenants are willing to pay in an open and competitive real estate market.
Vacancy Rate
What is the Vacancy Rate
Percentage of unoccupied space in a property or submarket. A core indicator for market health and absorption trends. Industrial vacancy remains historically low in CEE, boosting investor demand.
Absorption Rate
What is the Absorption Rate
Absorption Rate measures how quickly available commercial real estate space is leased within a specific market and time period. It indicates tenant demand, market strength, and overall space utilization by tracking the net change in occupied square meters over time.
Debt Service Coverage Ratio (DSCR)
What is the Debt Service Coverage Ratio (DSCR)
Debt Service Coverage Ratio (DSCR) measures a property's ability to generate enough Net Operating Income (NOI) to cover its debt payments. A higher DSCR indicates stronger cash flow, lower credit risk, and better loan eligibility for commercial real estate financing.
Replacement Cost
What is Replacement Cost
Replacement Cost is the estimated expense required to rebuild or replace a property with a similar asset at current construction, material, and labor prices. It is used in valuation, insurance underwriting, and investment analysis to assess whether a property is priced above or below its cost to reproduce today.