Vacancy rate is the percentage of all available rental units or leasable square footage in a property that remains unoccupied at a given point in time. It’s calculated by dividing vacant units (or vacant sq. ft.) by total units (or total sq. ft.) and multiplying by 100.
Vacancy rate measures empty space. Occupancy rate measures filled space. They always add up to 100% for the same asset and period.
Vacancy Rate (%) = (Number of Vacant Units ÷ Total Number of Units) × 100
Vacancy Rate (%) = (Vacant Square Feet ÷ Total Leasable Square Feet) × 100
Example: A 120-unit complex has 11 vacant units. Vacancy Rate = (11 ÷ 120) × 100 = 9.2%.
National multifamily vacancy averages hover around 5–7%. Local markets vary—urban cores often see lower rates (3–5%) than outlying suburbs (6–9%).
Urban cores tend to have lower vacancy rates due to high demand. Suburban markets run higher, and secondary submarkets or tertiary locations often top 10%.
Higher vacancy directly reduces effective gross income, lowering NOI.
Vacancy assumptions feed into rent roll forecasts. Underestimating vacancy can overstate cash flow and ROI.
Cap rate = NOI ÷ Purchase Price. Rising vacancy depresses NOI, increasing cap rate for a given price and reducing asset value.
Excess new supply or conversion of existing stock can push vacancy up until absorption catches up.
Job creation, population inflows and household formation drive demand and lower vacancy.
Seasonal leasing peaks (e.g., summer for apartments), recessions or events like pandemics can cause sudden shifts.
Subscription services offer detailed, up-to-date vacancy and absorption metrics.
Monthly or quarterly market briefs from local brokerages and industry groups fill in gaps.
Generally, 5–10% is healthy for multifamily. Commercial “good” benchmarks vary by sector. Below 5% can signal undersupply; above 10% may indicate oversupply or weak demand.
Quarterly tracking is standard, though active markets or leased-up assets may warrant monthly updates.
A rapid vacancy rise can warn of oversupply or market weakness. A sharp decline might highlight strong demand or rent upside—potential buying signal.
Alex finds this building reporting an 8% vacancy. He needs to compare it to the broader Austin market.
He gathers local data showing a 6% market vacancy. The property’s 8% exceeds peers, suggesting underperformance or lease-up lag.
Alex models a 2% vacancy improvement via marketing and modest rent concessions. He adjusts his offer down to account for two extra vacant units and negotiates financing covenants accordingly.
Set up a dashboard pulling data from public reports and subscription services. Update quarterly and flag any deviations beyond ±2% of your baseline.
