Using KPIs in real estate and rental leasing
Organizations in the Real Estate, Rental, and Leasing industry have a lot to manage, from buying and selling properties to tenant relationships and property maintenance. That's where KPIs come in! KPIs, or Key Performance Indicators), are data-driven metrics that help businesses measure their performance and make better decisions. For those in real estate, rental, and leasing, this means creating a KPI dashboard for real estate and property management that focuses on Real Estate KPIs, Rental KPIs, or Leasing KPIs. But why would an organization in this industry track KPIs? Let's explore the benefits they would get from using them.
Key performance indicators (KPIs) are metrics used to evaluate the success of a company, department, or individual in meeting key business objectives. Tracking KPIs is crucial in any industry to measure progress and identify areas for improvement. This is especially true in the real estate and rental and leasing industry, where large investments and fluctuating market conditions mean stakeholders must closely monitor performance.
In this approximately 5,000 word article, we will explore the importance of tracking KPIs in the real estate and rental and leasing sector. We will look at various KPIs used by different professionals in the industry, including brokers, property managers, leasing agents, and investors. For each KPI, we will examine why it matters, how to calculate and track it, and how it can be used to enhance business operations. With comprehensive KPI tracking, real estate and leasing professionals can optimize profits, customer satisfaction, and growth.
KPIs for Real Estate Brokers
Real estate brokers facilitate sales and leases of properties on behalf of clients. Tracking the right KPIs allows brokers to showcase their performance, identify training needs, and highlight areas for business growth. Some key KPIs for brokers include:
- Listings: The number of property listings a broker obtains each month or year. This measures their ability to acquire new business and build their portfolio.
- Listing to Sales Ratio: Percentage of listings that result in a closed sale. Higher ratios indicate the broker’s effectiveness at converting listings to transactions.
- Sales Volume: Total value of closed sales. Shows productivity and business growth potential.
- Commissions: Income earned from commissions on sales and leases. Indicates revenue and profitability.
- Sales Price to List Price Ratio: Comparison of sales prices to original listed prices. Demonstrates ability to sell at or above asking prices.
- Days on Market: The average number of days a listing is on the market before being sold. Lower averages indicate higher demand and effectiveness at appropriate pricing.
- Customer Satisfaction Scores: Feedback on broker performance. Can be captured through surveys and reviews. Highlights service quality.
These KPIs help brokers track sales performance, identify listings or services that need improvement, quantify their value proposition to prospective clients, and demonstrate growth to potential employers or investors. By monitoring KPIs month-over-month or year-over-year, brokers can showcase their ability to move properties in competitive markets. The metrics provide tangible evidence of productivity and success during broker reviews. Many brokerages actually tie broker commissions and bonuses to performance on certain KPIs like sales volume, reflecting their importance. Tracking KPIs enables brokers to build their personal brand, differentiate themselves in a crowded industry, and boost their income.
KPIs for Property Managers
Property managers handle the day-to-day operation of real estate assets on behalf of property owners. From residential condominiums to commercial buildings to retail complexes, property managers take care of maintenance, tenant relations, financial reporting, vendor management, and more. Key KPIs for property managers include:
- Occupancy Rate: Percentage of available building space that is leased. Higher occupancy means more revenue.
- Rent Collected: Total rent received versus total rent due. Shows ability to collect payments.
- Operating Expense Ratio: Operating expenses as a percentage of gross collected income. Highlights cost efficiency.
- Capital Expenditures: Investments in building upgrades and repairs. Important for maintenance and owner reports.
- Net Operating Income: Gross operating income minus operating expenses. Indicates profitability.
- Customer Satisfaction: Feedback from tenants. Gauges responsiveness to maintenance issues and overall tenant experience.
- Lease Renewal Rate: Percentage of leases renewed versus space turned over. Demonstrates tenant retention efforts.
- Accounts Receivable Days: The average number of days for collected rent payments. Lower averages mean faster collections.
Tracking these KPIs allows property managers to identify issues that may be diminishing profitability, like high vacancy, operating expenses, or slow rent collection. Comparing performance across different properties in a manager’s portfolio enables benchmarking. Presenting KPIs to owners provides transparent reporting. Many property management companies actually provide bonuses or performance incentives to managers who meet specific KPI targets, illustrating their importance. The metrics help managers showcase their ability to generate revenue, control costs, retain tenants, and ultimately operate properties in the owner’s best interest.
KPIs for Leasing Agents
Leasing agents, also known as leasing consultants, specialize in the sales and marketing of rental properties like apartments. They interface with prospects, give property tours, negotiate lease terms, and work to convert leads into tenants. Key leasing KPIs include:
- Leases Signed: Total number of new leases executed in a given timeframe. Shows sales productivity.
- Qualified Leads: Number of leasing prospects who appear financially qualified to sign a lease. Indicates solid lead generation.
- Tours Completed: Number of property tours given to prospects. Highlights sales activity.
- Applications Received: Total rental applications acquired. Displays prospect engagement.
- Close Ratio: Percentage of qualified leads or tours that result in a signed lease. Demonstrates sales conversion effectiveness.
- Concessions: Value of concessions such as reduced rent or waived fees. Lower concessions indicate stronger demand.
- Renewal Rate: Percentage of expiring leases that renew. Shows tenant satisfaction and retention efforts.
- Average Days to Lease: Time from move-out notice to re-leasing available units. Quick turnovers mean higher occupancies.
These KPIs help leasing agents demonstrate their sales efficiency, conversion rates, and value to property owners. Tracking metrics like qualified leads versus actual leases helps agents identify weaknesses in their sales process that may be causing fallout. Comparing performance to benchmarks and goals enables continuous improvement. Renewal rates spotlight areas of tenant dissatisfaction that may need to be addressed. Just like for brokers and property managers, leasing KPIs are often linked to incentive compensation and rewards. The metrics motivate leasing agents and arm them with tangible achievements to build their reputation and earn new business.
KPIs for Real Estate Investors
Real estate investors purchase properties to generate profits through appreciation, rent, flipping, or redevelopment. Their key KPIs include:
- Cash-on-Cash Return: Annual cash income from property divided by total cash investment. Shows near-term return on investment.
- Capitalization Rate: Net operating income divided by property value. Indicates potential return.
- Gross Rent Multiplier: Property value divided by gross annual rent. Helps assess valuation.
- Debt Service Coverage Ratio: Net operating income divided by mortgage payments. Highlights the ability to cover debt payments.
- Cash Flow: Net cash remaining after operating expenses and debt payments are made. Displays investable income generated.
- Internal Rate of Return: Overall return expected from property over time. Useful for acquisition decisions.
- Vacancy Rate: Percentage of vacant units or space. Directly impacts income.
- Property Appreciation: Increase in property value over time. Builds net worth for the investor.
These KPIs help real estate investors identify lucrative properties, value assets, assess risk, and decide when to buy, sell, or hold properties. Tracking metrics like the debt coverage ratio and cash flow ensures properties are not overleveraged or at risk of foreclosure. Appreciation underscores growth in net worth. Comparing the internal rate of return across assets in a portfolio enables investors to shift focus to the most profitable holdings. Monitoring KPIs gives investors the insight needed to make prudent decisions, capitalize on market opportunities, and maximize returns while minimizing risk. The metrics turn real estate investing into a numbers-driven business.
Best Practices for Using KPIs
Now that we have explored why various KPIs matter for different real estate and leasing professionals, how can they be effectively tracked and utilized? Here are some best practices:
- Choose a manageable number of KPIs that offer the most valuable insights for your role and objectives. Tracking too many metrics can be overwhelming.
- Use software and apps to automatically capture and organize KPI data versus manual entry and spreadsheets. This saves massive time while increasing accuracy.
- Set specific targets based on past performance, market conditions, and growth goals. This quantifies expected progress.
- Track KPIs consistently, at set intervals that align with business cycles. This identifies trends over time.
- Compare KPIs against internal business units and external industry benchmarks to contextualize performance.
- Review KPIs among leadership teams, departments, and individuals. This facilitates analysis and accountability.
- Link KPIs to employee goals, incentives, and rewards to motivate progress on what matters most.
- Develop action plans to address KPI shortfalls, maximize strengths, and capitalize on new opportunities uncovered by the metrics.
- Report KPIs via dashboards, performance reviews, market analyses, and investor updates. This communicates value.
- Adjust KPIs and targets as needed to reflect changing business models, market shifts, new initiatives, or other evolutions. Metrics should align with strategy.
- Take time to celebrate successes and milestones evidenced by KPIs! Tracking progress motivates the team.
With these best practices, real estate professionals get the most out of KPIs, harnessing data to drive smarter decisions.
Detailed Examples and Calculations
Let’s explore detailed examples and calculations for a few key real estate KPIs to better understand how they work:
One of the most fundamental KPIs for commercial real estate is occupancy rate, which measures the percentage of available building space that is leased and occupied by tenants. For example, consider a 10,000 square foot office building:
- Total leasable space: 10,000 sq ft
- Leased space: 8,000 sq ft
- Vacant space: 2,000 sq ft
To calculate occupancy rate:
Occupied Space / Available Space x 100
So for this building:
8,000 / 10,000 x 100 = 80% occupancy rate
This shows the building is 80% occupied. Higher occupancy rates generate more rental income. Tracking occupancy over time helps identify issues filling vacancies. Occupancy metrics segmented by unit type or floor can highlight specific problem areas needing focus.
Net Operating Income
A key income KPI for investment properties is net operating income (NOI). This calculates profitability after operating expenses are deducted from rental income. For example:
- Annual rental income: $120,000
- Annual operating expenses: $30,000
- Annual net operating income: $120,000 - $30,000 = $90,000
NOI compares income and expenses across different properties. It factors into valuations and helps assess return potential. NOI can be divided across invested capital to calculate return rates like cap rate. Rising NOI indicates greater profitability.
Average Rent Per Square Foot
For retail, office, and industrial real estate, average rent per square foot shows pricing power and asset quality. It is calculated by dividing total rental income by total leasable space. For example:
- Total annual rental income: $300,000
- Total leasable space: 20,000 sq ft
Average rent per square foot = Total annual rent / Total space
$300,000 / 20,000 sq ft = $15 per sq ft average rent
This metric helps set asking rents for vacant space. Comparing averages across units, floors, buildings, and markets aids pricing decisions. Rising rents per square foot often signal desirability and demand.
Customer Satisfaction Score
CSAT or customer satisfaction score is an important KPI for managing tenant experiences. It can be measured through tenant surveys and review sites. For example, a property manager sends a survey asking tenants: “On a scale of 1-10, how satisfied are you with your overall living experience?”
If the average rating across 150 tenants is 8 out of 10, the CSAT is 80%. This identifies strengths and weaknesses in tenant services. Some managers even tie staff bonuses to achieving a certain CSAT threshold. High satisfaction helps attract and retain tenants.
These examples illustrate how real estate professionals deploy KPIs in practical scenarios to operate more strategically and profitably. The metrics transform fuzzy concepts like “performance” into quantifiable, actionable data points.
Top Real Estate Software
Given their benefits, real estate professionals aim to monitor KPIs continuously and efficiently. The most powerful tool for tracking KPIs is dedicated software. Here are some top solutions on the market:
- PropertyMetrics - Robust real estate investment analytics platform with tools to track property-level KPIs like cash flow, rate of return, appreciation, and more. Integrates market data.
- RealPage - Specialized property management software with built-in KPI dashboards, benchmarking, and automated reporting.
- RealCapitalAnalytics - Commercial real estate data and analytics solution with KPI benchmarking. Covers property valuations, sales comps, and market trends.
- MRI Software - Dynamic property management system providing occupancy rate tracking, expense management, and KPI reporting.
- Yardi - End-to-end property management and accounting software with integrated KPI tracking and analysis.
- Entrata - Residential property management software optimized for KPIs like occupancy rate, resident retention, collections, and leasing velocity.
- Kingsley Gate - Award-winning real estate CRM offering brokerage KPIs on listings, closings, referrals, reviews, and commissions.
- Altus Group - Software for real estate equity funds, investors, and appraisers with embedded KPI dashboards and analytical tools.
These platforms automate KPI capturing, organization, analysis, and reporting. Built-in benchmarking and market data integration provides context for performance evaluation. Robust functionality and flexibility enables custom KPI tracking aligned to each customer's objectives. Structured reporting and visualization makes insights easy to digest and act upon. Real estate software represents a major upgrade from makeshift Excel-based KPI tracking.
Take Away Points
In today’s data-driven business environment, effectively tracking key performance indicators is mission critical for real estate professionals. KPIs boost strategic decision making, enhance offerings, motivate staff, justify value, and ultimately drive profitability across the industry.
While the sheer number of potential KPIs can seem overwhelming, zeroing in on metrics aligned to role-specific goals and objectives allows real estate professionals to quantify what matters most. Consistently capturing performance data, applying context through benchmarking and historical comparisons, and reporting insights facilitates continuous improvement across processes, services, and business units.
With leading software solutions now making KPI tracking and analysis easier than ever, real estate professionals are empowered to showcase achievements, identify issues proactively, and maximize success in competitive markets. The numbers don’t lie – for brokers, property managers, leasing agents, investors, and more, monitoring key performance indicators is a direct path to prospering in the property business.