What is development yield in commercial real estate?

What Does "Development Yield" Mean?

In real estate, development yield refers to the anticipated rate of return on a property development project. It is calculated by dividing the project's net operating income (NOI) upon completion and stabilization (when occupancy rates and rental income have normalized) by the total development cost, including land acquisition, construction expenses, financing costs, and any other related expenses. This metric helps developers and investors assess the profitability and financial viability of developing a commercial real estate project before committing resources to it.