Occupancy Rate


DEFINITION of 'Occupancy Rate'

In real estate, the number of units in a building that have been rented out as compared to the total number of units in the building. An apartment building containing 20 units, 18 of which had renters, would have a 90% occupancy rate. A 200-room hotel with 150 rooms occupied would have a 75% occupancy rate.

Conversely, the vacancy rate is the number of units in a building that are not rented out as compared to the total number of units in the building.

BREAKING DOWN 'Occupancy Rate'

Occupancy rates are important to real estate investors because they provide an indication of anticipated cash flows. A commercial real estate investor looking for a shopping center to buy would probably not be interested in one that only had a 25% occupancy rate, meaning that tenants were leasing just 25% of the available space.

An investor in such a property would have to spend time and money to find additional tenants and would risk not earning any income from 75% of the space he owned, while he would still have to pay maintenance and property taxes on that space. The low occupancy rate probably indicates that something real or perceived is wrong with the shopping center, such as its location or amenities. In some cases, one or two tenants leaving a shopping center can have a domino effect that creates a low occupancy rate.

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