Property management & leasing
Vacancy Rate: Definition & Example
What Is a Vacancy Rate?
Vacancy 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.
What does vacancy rate mean?
Physical vacancy rate is vacant units divided by total units. Economic vacancy rate is rent lost to vacancy, and sometimes to concessions and bad debt, divided by total potential rent.
Investors and lenders include a vacancy assumption, often 5% to 8%, when projecting a property’s income. A market with low vacancy usually supports rising rents. A high vacancy rate signals weak demand or too much new supply.
Vacancy rate is the mirror image of occupancy rate: a building that is 94% occupied has a 6% vacancy rate.
Vacancy rate example
A 50-unit building has 3 empty units. Its physical vacancy rate is 3 ÷ 50 = 6%. If those units average $1,200 per month and have been empty for the full month, the property lost $3,600 of its $60,000 potential monthly rent, also 6% economic vacancy.
Related terms
- Occupancy RateOccupancy rate is the percentage of a property’s units that are currently leased or occupied, the inverse of the vacancy rate.
- 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.
- 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.
- Market RentMarket rent is the amount a rental unit would likely lease for today on the open market, based on comparable units nearby with similar size, condition, and amenities.
- Rent ConcessionA rent concession is a discount or incentive a landlord offers to attract or keep tenants, such as a free month of rent, reduced rent for a period, or waived fees.
Vacancy rate FAQ
- What is a good vacancy rate?
- It depends on the market, but many investors consider 5% to 7% normal for stabilized residential property. Much lower can mean rents are below market.
