Occupancy Rate

AAA

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.

INVESTOPEDIA EXPLAINS '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.



RELATED TERMS
  1. Average Daily Rate - ADR

    A metric widely used in the hospitality industry to indicate ...
  2. Vacancy Rate

    The vacancy rate is a numerical value calculated as the percentage ...
  3. Lease

    A legal document outlining the terms under which one party agrees ...
  4. Revenue Per Available Room - RevPAR

    A performance metric in the hotel industry, which is calculated ...
  5. Lessor

    The owner of an asset that is leased under an agreement to the ...
  6. Lessee

    The person who rents land or property from a lessor. The lessee ...
RELATED FAQS
  1. How much of the global economy is comprised of the real estate sector?

    The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue ... Read Full Answer >>
  2. What are some examples of smart beta ETFs that use passive and active management?

    There are a number of smart beta exchange-traded funds (ETFs) that use passive and active management, including the WisdomTree ... Read Full Answer >>
  3. How does implied volatility impact the pricing of options?

    Implied volatility is an important aspect of the time value premium of an option. As implied volatility increases, call and ... Read Full Answer >>
  4. What is the process for a building owner depreciating leasehold improvements in a ...

    As long as the building owner is the person or entity that provides leasehold improvements, then the owner can depreciate ... Read Full Answer >>
  5. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Taxes

    Tax Deductions For Rental Property Owners

    Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
  3. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  4. Economics

    What is a Leasehold Improvement?

    A leasehold improvement is an alteration made to a rented space that customizes the space for the tenant.
  5. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  6. Investing Basics

    What is an Asset-Backed Security?

    An asset-backed security (ABS) is a debt security collateralized by a pool of assets.
  7. Taxes

    What is an Ad Valorem Tax?

    An ad valorem tax is a levy placed on real or personal property based on the assessed value of that property.
  8. Personal Finance

    5 Assets Only The Ultra Rich Can Afford

    Yacht? Private jet? Not that unusual. If you’re rolling in the big bucks, you can buy something much more interesting.
  9. Professionals

    Why Advisors Should Seek Out Wealthy Workers

    The majority of "high-net-workers" thinks an advisor would add value, but few use them. Financial advisors should see this as an opportunity.
  10. Professionals

    Top ETFs, Mutual Funds for Investing in Water

    The nation's water supply is declining as demand is increasing. This presents an investment opportunity, just mind your liquidity.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!