What Is a Vacancy Rate?

What Is a Vacancy Rate?

Let me explain what a vacancy rate really is: it's the percentage of all available units in a rental property, like a hotel or apartment complex, that are sitting vacant or unoccupied at any given time.

You should know that the vacancy rate is basically the flip side of the occupancy rate, which tracks the percentage of units that are actually occupied. If you see high vacancy rates, that means the property isn't renting well, but low rates suggest strong rental performance.

Understanding Vacancy Rates

As a property owner, you need to pay attention to vacancy rates because they show how your building stacks up against the local market's average. These rates also act as broader economic indicators, giving you a clear picture of market conditions.

In real estate, vacancy rates typically cover units that are empty and ready for rent, those turned over after a tenant leaves, or ones that aren't rentable due to needed repairs or renovations. I can tell you that low vacancy rates are a good sign—it means people want to live in that area or building—while higher rates point to the opposite.

Remember, low rates mean more units are occupied, and high rates suggest people are avoiding a certain building or location. You calculate the rate by taking the number of vacant units, multiplying by 100, and dividing by the total units. The vacancy and occupancy rates should always add up to 100%. For instance, if an apartment building has 300 units and 30 are empty, you're looking at a 10% vacancy rate.

To use these rates effectively, compare similar properties—don't pit a commercial office against a small apartment complex, as that's not fair. The same goes for comparing a small town to a big city; different factors are at play.

Real Estate Vacancy Rate Analysis

You can use vacancy rates as a key metric to analyze your property. Shifts in vacant versus occupied units, how long units stay rented, or other rental conditions will guide you on how competitive your property is. If you're charging way more or less than the market, it'll show in the vacancy rates, and this can also reveal impacts from price adjustments or advertising on occupancy.

While you might track nightly vacancy for something like a hotel, broader vacancy rates serve as economic indicators for the real estate market's health. Firms in commercial real estate often measure industry strength through vacancy rates, rental rates, and construction activity.

Back in May 2019, Jones Lang LaSalle reported that the U.S. real estate market held steady from 2018, with vacancy rates near historic lows. Office vacancies were around 5% in the first quarter, and despite projections of a development boom outpacing occupancy, demand stayed strong. Among major metros, San Francisco had the lowest office vacancy at 8.1% in 2018, while New York's Westchester County hit the highest at 24.9%.

Residential Vacancy Data

The U.S. Census Bureau puts out a quarterly report on residential vacancy data, including rental vacancy rate, homeowner vacancy rate, and homeownership rate. In April 2019, national rental vacancies were at 7%, with homeowner vacancies at 1.4% for the first quarter.

These numbers have stayed pretty stable lately, after dropping from peaks during the housing crisis—rental vacancies hit 11.1% in 2009, and homeowner ones reached 2.9% in 2008.

The Bureau also gathers data on rental prices and property details. Just like with commercial markets, you can use this—along with other info—to gauge the residential real estate economy's health by looking at changes in available units and average prices.

Investors and Vacancy Rates

Vacancy rates are crucial for your business decisions and can help you figure out if a real estate investment is solid. For example, if you're eyeing a large apartment complex, check its vacancy rate and compare it to similar properties in the area to assess performance and decide if it's worth buying.

Vacancy Rates in Employment

Shifting gears, vacancy rates also apply to employment: they measure the number of open positions a company has compared to its total positions. In essence, it shows the proportion of roles allocated for certain duties that currently lack an employee.

When you combine this with metrics like turnover or employee tenure, vacancy rates can indicate how well a company advertises jobs, fills them, and keeps staff on board.