Vacancy Rate

The percentage of vacant units in a multifamily community.

What is the meaning of vacancy rate?‍

Vacancy rate is a term used to describe the number of vacant units that are available to be occupied on a rental basis. The vacancy rate is typically used for multi-family real estate properties, commercial real estate properties, hotels, colonies, etc to determine how many units are available to be rented for a specific period of time. 

If the vacancy rate of a property is high, it may indicate that the property is not a popular choice for tenants. This could be for many reasons such as high rent or poor property management, or lack of modern amenities or isolated location. It can also be due to the market or economic conditions where people are unable to spend. 

Contrary to this, a low vacancy rate indicates that the property is a good choice for tenants and that it is located in a desirable location with proper amenities and management. 

Why is it important to calculate vacancy rate of a property?‍

Vacancy rate is a very important factor that determines the performance of a property and to analyze the shortcomings. Property owners determine the vacancy rate to see how the property is performing in comparison to other properties in the same area and compare the vacancy rate of the property to the average vacancy rate of that area. 

This can further help the property owner to take measures to improve the vacancy rate if it is low by making renovations or reducing the rent. 

It can also sometimes be a deciding factor for investors whether they want to invest in a particular property. By comparing the vacancy rates of the past years with that of other real estate investment opportunities in the same area, an investor can make an informed decision. He can choose to invest and renovate or upgrade the property or choose another property that promises higher occupancy rate.

How do you calculate the vacancy rate of a property?‍

To calculate the vacancy rate of a property means to determine the percentage of vacant units out of all the units available. For this, simply take the number of vacant units, multiply it by 100 and divide by the total number of units available in the property. Hence, the formula for vacancy rate is:

Vacancy Rate = No. of vacant units in the building x 100 / Total number of units in the building‍

Let’s understand this with an example. Suppose Mr. Miagi is looking to invest in a multi-family apartment building. He checks an apartment building with 100 units. He is told that out the 100 units 11 units are vacant and the rest are occupied. 

Then, he checks another apartment building with 120 units out of which 90 were occupied and the rest were vacant. He decides to compare the vacancy rate to determine which one is the most profitable. To calculate the vacancy rate of the first property, he will use the formula like this:

Vacancy rate of property 1 = 11 x 100/100 = 11%

Vacancy rate of property 2 = 30 x 100/120 = 25%

Here, the vacancy rate of property 1 is lower so Mr. Miagi will choose to invest in this property instead of property number 2. 

What are the factors that can impact vacancy rate?‍

Factors that can impact the vacancy rate of a property are:‍

• Economic or market conditions
• Area or neighborhood
• Amenities provided
• Age of the property
• Location 
• Accessibility to schools and hospitals
• Accessibility to stores and other place
• Commute
• Population density 
• Industrial growth in the area

Conclusion‍

Vacancy rate is an important indicator of a property’s performance and popularity amongst renters or tenants. Using this metric a property owner can evaluate if he has to upgrade the property and invest in renovation or better management of the property. 

For an investor, the vacancy rate is important to determine whether the property is going to generate a stable income flow for him or not. Vacancy rate is simply the opposite of occupancy rate and investors must compare the rate with the average vacancy rate in a particular area to come to the best decision. 

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Related Links:

Vacancy Loss

Model Unit