Physical vs economic vacancy: definitions and how to compute each

Physical vacancy asks how much of the building is empty. Count it by units, by area or both. They differ whenever the empty units are larger or smaller than average, which is why a roll with an area column gives the better answer.

Economic vacancy asks how much of the rent the building could earn is not arriving. It starts with the rent of the empty units and adds the discounts and non-payment that leave occupied units paying less than their potential.

Occupancy is the mirror image

Occupancy is 100% minus vacancy. Lenders and offering materials quote both physical and economic occupancy, and they are not interchangeable, so ask which one a figure is.

Definitions vary

Common definitions of economic vacancy include vacancy loss, concessions and credit loss. Some also include loss to lease, model units and employee units. Write the definition next to the number.

Statuses are not all the same

A status column may say occupied, vacant, notice or pre-leased, and they do not mean the same thing. A unit on notice is occupied today and likely empty soon. A pre-leased unit may be empty today and leased from a future date. Decide how each counts and say so.

1. Count units and area

   Take total units and total rentable area from the roll, vacant units included.

2. Compute physical vacancy

   Vacant units divided by all units, and vacant area divided by all area.

3. Price the empty units

   Add up the market rent of the vacant units. This is vacancy loss, and it needs a market rent source.

4. Add concessions and credit loss

   Take concessions from the roll's notes or the leases, and credit loss from the ledger or the T-12.

5. Divide by gross potential rent

   Vacancy loss plus concessions plus credit loss, over GPR, is economic vacancy. Add loss to lease if your definition includes it.

6. Compare and explain the gap

   If economic vacancy sits well above physical, look for concessions, unpaid rent or units held off the market.

Worked on the invented 24-unit building used across these guides, where the 2 empty units are both two-bedrooms.

Monthly figures. The same two units are 8.3% of the units, 9.9% of the area and 9.3% of the potential rent.

Quoting occupancy without saying which

Occupancy by units, by area and economic occupancy can differ by several points. A percentage with no basis cannot be compared.

Leaving vacant units off the roll

A roll listing only occupied units cannot give physical vacancy. Ask for the complete roll.

Counting units that cannot be leased

Down units, models and employee units are physically occupied or empty but do not earn full rent. Ask how the figure treats them.

Using one date for a seasonal property

Vacancy on one day can differ from the year's average, especially for student or seasonal property. Compare with the T-12.

Mistaking a lender's floor for actual vacancy

A lender may underwrite to a minimum vacancy factor above the actual figure. That is an assumption, not a measurement.

RentRoll Engine reports the physical measures directly. A rent roll PDF converted to CSV shows units, occupied and vacant, and occupancy by unit count and by area, with rent and area checked against the page totals. Economic vacancy needs market rent, concessions and credit loss, which it does not compute. Free: 1 file per day, up to 10 pages, no account. Files over 10 pages are converted up to page 10 on the free allowance; a page code converts the whole file, up to 150 pages. See pricing.

• Gross potential vs actual rent. How loss to lease, vacancy and concessions bridge potential rent to actual rent.
• NOI from a rent roll. Gross potential rent to effective gross income to NOI, with a worked table.
• What is a rent roll. The fields on a rent roll, who prepares it and who relies on it.

All twelve guides