What Is a Commercial Real Estate Sensitivity Analysis?

Author Lisa Stern Read bio
Tags: cre sensitivity analysis
Date: December 2, 2021

Everyone that deals in CRE generally deals with big things. And when you do big things, you have to look at particular big things that move the investment metrics.

For example, if you are developing and managing apartments, you look at cap rates, interest rates, construction costs, vacancy, and rents.

If your job is to develop and hold investment, rents and vacancies will be your big things. If it’s a develop-and-sell type of business, cap rates, and construction costs will be the big things you’re after.

These “big things” are property profitability, and depend on many factors that can be calculated in different methods.  The most common one is sensitivity analysis

You can actually use anything really, but you should focus on particular make or break criteria to drive your business to success.

I will try to simplify what the sensitivity analysis in real estate is, how it works and how to make your own real estate sensitivity analysis excel.

What is a Sensitivity Analysis?

Commercial real estate sensitivity analysis is basically an assumption, but a useful method many investors use to determine whether purchasing some commercial property is likely to meet their financing goals.

As I have mentioned in the beginning, sensitivity analysis takes into account several factors that largely impact an investment property’s return.

By analyzing all of those factors, it can help you calculate how a change in each factor would affect the final profits some assets make.

People commonly use the effects of purchase/sale cap rate on equity multiple. If the lease is short-term – the effect of various base rental rates (with assigned probabilities) on cash on cash.

The streets of San Francisco

How Does a Sensitivity Analysis Work?

Or even a better question – where can sensitivity analysis be of help? 

Any amount of money you put down on some property will affect its profit potential. But, knowing in advance the minimum down payment you need to invest allows you to estimate your leverage, and how much money you can rely upon.

If you are concerned by some of the following questions – the real estate analysis might be of help.

  1. Calculating NOI (Net Operating Income) from buying some property and then renting it for a certain amount of money
  2. Calculating the lowest rent you can charge and still make a profit
  3. Calculating vacancy rate with whom you can start losing money
  4. Calculating the cap rate and NOI in cases when you don’t have a lot of money
  5. Calculating debt service if you pay interests, or if your vacancy rates go up
  6. Calculating the time your property is most likely to start losing money
  7. Calculating how down payments can affect returns

A laptop on the desk next to a coffee mug

Build Your Own Sensitivity Analysis In Real Estate

Running a real estate sensitivity analysis can be complicated. Many choose to use a template-based program like Microsoft Excel or specific software. Better still, you can engage an advisor to the commercial real estate sensitivity analysis for you. 

At IPG, we have the latest technology, knowledge, and tools that make sensitivity analysis in real estate and calculate your return on investment much easier. It is a great way to liberate yourself from the stress of uncertainty.

Anyways, I definitely recommend building your own sensitivity analysis in real estate, and continuously, gradually improving it by adding in variables to make it more robust. 

By doing this you will actually understand how your investment “works”.

You choose variables that work for your business, and that have proven themselves as lucrative for you.


To make sure you have obtained accurate data, you should change only one variable at a time. Also keep in mind that some variables in the commercial real estate sensitivity analysis, naturally affect another variable, but regardless, make sure your numbers are clean, and as I’ve said – stick to one variable at a time.

The Golden Gate bridge seen from afar

The Usefulness of the Sensitivity Analysis in Real Estate

Although there are no completely accurate methods to be sure of how your real estate property will perform, the sensitivity analysis is a more “in-depth” look at different profitability scenarios.

Let’s say you’ve chosen to invest in a purchase of an NNN property. The sensitivity analysis becomes much more straightforward in this case, as so does your overall investment property ownership.

Commercial Real Estate Sensitivity Analysis with IPG

Additionally, if you engage an IPG Advisor to help you with your purchase, we will do it for you.

We specialize in NNN lease investments and 1031 exchanges, and guide buyers through the process with ease, starting with education and advocacy, all the way through closing. Contact us today – we can help!