The vacancy rate is the share of units, or of rentable area, sitting empty at a point in time. At the level of one building it is a fact that can be counted. At the level of a market it is an estimate over a defined set of buildings, and the definition of that set does most of the work.
- Small buildings move in whole units. One turnover swings the rate by double digits, and the average over a year is the only useful reading.
- Ask which buildings were counted. A figure drawn from institutional product does not describe eight units on a residential street.
- A very low vacancy rate is not automatically good news. It often means rents are under market and nobody is leaving.
- Physical emptiness is only part of lost income. Collection problems and unit downtime do not show up in a count of empty doors.
The same eight units with one unit empty, against the 5% the underwriting assumed.
One empty unit in a small building is 12.5% vacancy by arithmetic. The assumption underwritten is a judgment about the year, not about today.
Related terms
All termsAbsorption
Absorption is the rate at which available space is taken up over a period: units leased, net of units given back.
InvestmentOperating Expense Ratio
The operating expense ratio is total operating expenses divided by effective gross income, expressed as a percentage.
OwnershipRent Roll
A rent roll is the schedule of every unit in a building and what it earns: the tenant, the rent, the lease start and end, the deposit held, and whether the unit is occupied.
Terms arrive with the writing.
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