What is the 'Occupancy Rate'

Occupancy rate refers to the ratio of rented or used space compared to the total amount of available space. Analysts use the phrase occupancy rates when discussing senior housing, hospitals, bed-and-breakfasts, hotels and rental units, among other categories. In a call center, occupancy rate refers to the amount of time agents spend on calls compared to their total working hours.

BREAKING DOWN 'Occupancy Rate'

To illustrate, if an apartment building contains 20 units, 18 of which have renters, it has a 90% occupancy rate. Similarly, a 200-room hotel with guests in 150 rooms has 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.

Occupancy Rates and Real Estate Investors

Occupancy rates are important to real estate investors because these numbers provide an indication of anticipated cash flows. A commercial real estate investor looking for a shopping center to is likely not interested in one that only has a 25% occupancy rate, meaning that tenants were leasing just 25% of the available storefronts and restaurant space in the mall.

An investor who buys a property with a relatively low occupancy rate has to spend time and money to find additional tenants, and he risks not filling the spaces, while still facing maintenance costs and property taxes on them. Because of this, apartment complexes, malls and other facilities with low occupancy rates often sell for less than similar properties with high occupancy rates. In some cases, a low occupancy rate indicates that something is wrong with the shopping center, such as its location or available amenities. In other cases, low occupancy rates may simply mean the facility is poorly managed by its existing owners.

In other cases, real estate investors may look at the occupancy rates of hotels and other facilities near a property he is considering buying. These numbers can indicate something about the financial health of the area. For example, if an investor is thinking about buying a restaurant, he may try to find out the occupancy rates of nearby hotels, as those numbers arguably affect his pool of potential diners.

Hospital Bed Occupancy Rates

Hospital bed occupancy rates, as well as occupancy rates for nursing homes, can be useful for examining trends in the facility's growth. To avoid overcrowding, these facilities manage their occupancy rates. They often track occupancy rates for specific departments as well, to help assess growth and demand. Governments and organizations also use aggregate numbers on hospital occupancy levels to make plans regarding public health initiates.

RELATED TERMS
  1. Occupational Labor Mobility

    Refers to the ease with which workers can switch career fields ...
  2. Occupational Safety And Health ...

    Law passed in 1970 to encourage safer workplace conditions in ...
  3. Average Daily Rate - ADR

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

    The vacancy rate is a numerical value calculated as the percentage ...
  5. Occupancy Fraud

    A type of mortgage fraud, whereby the borrower lies about whether ...
  6. Effective Gross Income - EGI

    The amount of income produced by a piece of property, plus miscellaneous ...
Related Articles
  1. Investing

    A Senior Play In Senior Housing

    With millions of Baby boomers retiring, that leaves opportunities for investors to profit. One way is through senior living real estate.
  2. Personal Finance

    The Best Industries for Interns in 2015

    While the U.S. Bureau of Labor Statistics estimates 50.5 million jobs openings will be created between 2012 and 2022, there are a number of well-paying occupations that will be in greater demand ...
  3. Insights

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  4. Financial Advisor

    Disability and Business Overhead Coverage for the Self-Employed

    What every small business owner or professional needs to know about individual and business overhead disability income insurance plans.
  5. Investing

    How Interest Rates Affect Property Values

    When interest rates fall, real estate prices tend to increase. Why? Find out here.
  6. Investing

    The 6 Best States For Renters

    These areas offer the most bang for your rental buck.
  7. Investing

    A Guide to Real Estate Investing

    Investing in real estate is a popular choice for good reasons, but it's more complicated than owning your typical stocks and bonds.
  8. Investing

    4 Key Factors That Drive The Real Estate Market

    Whether you are investing directly or indirectly in property, you need to know the factors that affect its value.
RELATED FAQS
  1. How much of the global economy is comprised of the real estate sector?

    Find out how much of the global economy consists of the real estate sector, including output from commercial and residential ... Read Answer >>
  2. What are the differences between investing in real estate and stocks?

    Invest in real estate by purchasing physical property or buildings, or invest in stocks by buying a claim to a company and ... Read Answer >>
  3. How have low interest rates affected the real estate sector?

    Learn how low interest rates stimulate the real estate sector by making it more affordable to borrow money to invest in real ... Read Answer >>
  4. How is Net Operating Income (NOI) used in real estate?

    Find out more about net operating income, what it measures and how it is used to analyze a real estate property's return. Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  6. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
Trading Center