What Is Operating Expense Ratio (OER)?

The Operating Expense Ratio (OER) tells you what percentage of a property’s gross income is consumed by operating expenses. Formula: OER = Operating Expenses ÷ EGI A property with $180,000 in operating expenses and $300,000 in EGI has an OER of 60%.

The Operating Expense Ratio (OER) tells you what percentage of a property’s gross income is consumed by operating expenses.

Formula: OER = Operating Expenses ÷ EGI

A property with $180,000 in operating expenses and $300,000 in EGI has an OER of 60%. That means 60 cents of every dollar earned goes to running the building before a single dollar of debt service is paid.

OER benchmarks vary by asset class:

• Multifamily (apartments): 35–50%
• Office buildings: 50–65% (landlords often pay more utilities and maintenance)
• Industrial/NNN: 10–25% (tenants pay most expenses directly)
• Retail (gross lease): 40–55%

When you see an OER far below the benchmark for its asset class, be suspicious. A multifamily seller quoting a 28% OER likely omitted capital reserves, underestimates management fees, or is presenting “actual” expenses from a year they deferred maintenance. Investors who buy on proforma OER without verifying actual trailing-12 expenses get burned.

When you see an OER far above benchmark, it’s either a mismanaged property (an opportunity) or a structural problem (an expensive roof, outdated systems, high property tax assessment). Knowing which it is determines whether it’s a value-add play or a money pit.

OER is your first sanity check on any deal. Calculate it before you go further.

Learn this properly

OER is one of the core numbers in commercial real estate. The Language of CRE course teaches it alongside every other metric you need to read a deal, with worked examples and practice questions.

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Common questions

What is Operating Expense Ratio (OER)?

The Operating Expense Ratio (OER) tells you what percentage of a property’s gross income is consumed by operating expenses. Formula: OER = Operating Expenses ÷ EGI A property with $180,000 in operating expenses and $300,000 in EGI has an OER of 60%.

Why does OER matter in a commercial real estate deal?

That means 60 cents of every dollar earned goes to running the building before a single dollar of debt service is paid. OER benchmarks vary by asset class: Multifamily (apartments): 35–50% Office buildings: 50–65% (landlords often pay more utilities and maintenance) Industrial/NNN: 10–25% (tenants pay most expenses directly) Retail (gross lease): 40–55% When you see an OER far below the benchmark for its asset class, be suspicious.

Related terms

[Price Per Unit and Price Per Square Foot](/price-per-unit-and-price-per-square-foot/) · [Rent Escalations](/rent-escalations/)

Educational definition only. Not investment, financial, or brokerage advice.