The Australian investment and business landscape is constantly shifting, and in 2025, understanding financial metrics is more critical than ever. One figure that deserves every investor’s attention is the operating expense ratio (OER). It’s not just a number on a spreadsheet—this ratio holds the power to reveal the efficiency and profitability of your investments, especially in real estate and commercial ventures. Here’s why the OER should be on your radar and how changes in 2025 policy and the economic environment can make a difference.
What Is the Operating Expense Ratio?
The operating expense ratio is a simple but powerful calculation: it compares a property’s or business’s operating expenses to its gross income. For property investors, this means all the costs to keep a property running (like maintenance, insurance, council rates, and management fees) divided by the total rental income. For businesses, it’s the ratio of operational costs (excluding interest and taxes) to net sales or revenue.
- Formula for property: OER = Operating Expenses / Gross Rental Income
- Formula for businesses: OER = Operating Expenses / Net Sales
A lower OER suggests a property or business is efficiently managed, while a higher ratio can be a red flag for excessive costs or lagging income.
Why the OER Matters in 2025’s Australian Market
With inflation still a hot topic and the Reserve Bank of Australia (RBA) holding the cash rate steady at 4.35% in early 2025, expenses are under the microscope for investors and business owners alike. Rising insurance premiums, higher utilities, and wage pressures are pushing operating costs up. Meanwhile, rental yields and business revenues are feeling the squeeze from a cautious consumer base.
Here’s why tracking your OER is more important than ever this year:
- Cost Pressures: The ongoing rise in property insurance premiums and council rates in most states—especially in flood and bushfire-prone regions—has pushed average OERs for residential properties from 30% up to 35% or more in 2025.
- Rental Market Shifts: With the NSW and Victoria rental reforms tightening rent increase limits and strengthening tenant rights, some landlords have less flexibility to pass on higher costs. This can result in a creeping OER if expenses grow faster than rents.
- Business Energy Transition: New government incentives for energy-efficient retrofits (under the expanded Energy Efficient Communities Program) have seen many businesses invest in upgrades. While these can lower future energy bills, initial costs can spike OER temporarily.
Staying alert to these trends and regularly calculating your OER lets you spot problems early and benchmark against the market. For example, if you own a Brisbane apartment and your OER is 40%, while similar properties average 32%, it’s time to investigate your expenses.
How to Use OER for Smarter Decisions
The OER isn’t just a diagnostic tool—it’s a lever for strategy. Here’s how savvy Australians are putting it to use in 2025:
- Property Investors: Use OER to compare potential acquisitions or to justify rent increases. If a property’s OER is above the suburb average, negotiate harder on purchase price or look for cost-cutting opportunities.
- Business Owners: Analyse OER by department or location to identify underperforming areas. For instance, if your regional office’s OER is creeping up due to rising energy costs, it may be time to invest in solar or renegotiate supplier contracts.
- Portfolio Managers: Benchmark OERs across multiple assets. In 2025, many fund managers are prioritising assets with resilient OERs in the face of rising cost bases and stagnant revenues.
Real-world example: In early 2025, a Melbourne-based commercial landlord used OER analysis to justify a major HVAC upgrade, projecting a long-term OER reduction from 38% to 31%—a move that increased the property’s value and tenant satisfaction.
Tips for Managing and Improving Your OER
- Conduct annual OER reviews and compare with industry benchmarks
- Audit recurring expenses—utilities, insurance, maintenance—for savings opportunities
- Consider technology upgrades or energy-efficient retrofits to cut future costs
- Negotiate service contracts and shop around for better deals on insurance or management
- Stay informed on state and federal policy changes that affect operating costs and potential subsidies
Remember, a healthy OER not only protects your bottom line but also boosts your asset’s resale value and attractiveness to lenders or investors.
The Bottom Line
As Australia navigates through inflation and policy changes in 2025, keeping a close eye on the operating expense ratio is a non-negotiable for property and business success. Use it to benchmark, identify risks, and uncover opportunities—because in this environment, every percentage point counts.
