Property management & leasing
Occupancy Rate: Definition & Example
What Is an Occupancy Rate?
Occupancy rate is the percentage of a property’s units that are currently leased or occupied, the inverse of the vacancy rate.
What does occupancy rate mean?
Occupancy rate is calculated as occupied units divided by total units. It is one of the first numbers owners, lenders, and buyers look at when judging how well a property is performing.
Physical occupancy counts units with a tenant in place. Economic occupancy compares rent actually collected with the maximum rent possible, so it also reflects concessions, delinquency, and bad debt. A property can be 97% physically occupied but only 90% economically occupied if several tenants are not paying.
Lenders often require a minimum occupancy, such as 85% or 90% for a set period, before a property qualifies for permanent financing.
Occupancy rate example
A 120-unit community has 113 units leased. Its occupancy rate is 113 ÷ 120 = 94.2%. Four of those tenants are behind on rent, so economic occupancy is closer to 91%.
Related terms
- Vacancy RateVacancy rate is the percentage of rental units in a property or market that are empty and available at a given time, or the share of potential rent lost to vacancy.
- Rent RollA rent roll is a report that lists every unit in a property with its tenant, rent, lease dates, deposits, and balance due, giving a snapshot of the property’s rental income.
- Tenant TurnoverTenant turnover is when a tenant moves out and a new one moves in, along with the costs and vacant time that come with replacing them. It is often expressed as an annual turnover rate.
- Owner StatementAn owner statement is a periodic report a property manager sends a property owner summarizing income collected, expenses paid, management fees, and the net amount distributed.
