What Is NOI? Net Operating Income Explained

NOI is income minus operating expenses, before debt service. See a full shopping center NOI build and the usual errors.

October 04, 2026 • 5min read

Definition

Net operating income is a property’s annual income after operating expenses and before debt service, capital spending and income taxes. It measures what the real estate earns on its own. Every other valuation metric builds on it.

Formula

NOI = effective gross income − operating expenses. Income: base rent, expense recoveries, percentage rent and other income, less vacancy and credit loss. Expenses: taxes, insurance, common area maintenance, utilities, repairs, management.

Example

A 100,000 square foot center, 92% leased at $20 per square foot, collects $1,840,000 in base rent, $520,000 in recoveries, $30,000 in percentage rent and $20,000 in other income, less $18,400 in credit loss: $2,391,600. Expenses of $771,600 leave NOI of $1,620,000.

In practice

Brokers divide it by a cap rate to price the asset. Lenders size loans from it through DSCR and debt yield. Asset managers judge performance by its growth.

Watch for

Seller NOI often omits management fees or assumes a tax bill that resets at sale. Percentage rent depends on tenant sales reporting, which is incomplete at most centers. Store sales estimates fill the gap. CenterCheck’s store level data lets an owner test percentage rent and compute each tenant’s occupancy cost ratio, the clearest sign of whether retail income will hold.