What is 'Vacancy Rate'
The vacancy rate is the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time. It is the opposite of the occupancy rate, which is the percentage of units in a rental property that are occupied. High vacancy rates indicate that the property is not renting well; low vacancy rates point to strong rental sales.
BREAKING DOWN 'Vacancy Rate'The vacancy rate can also apply to the number of open positions a company currently has in comparison to the total number of positions available throughout the company. When related to other employment metrics, such as turnover or employee longevity, a vacancy rate can provide indications as to how successful the company is at advertising open positions and retaining current employees.
In real estate, the vacancy rates most often represent units that are vacant and ready to be rented, units that have been turned off upon the exit of a tenant, and units that are not currently rentable because they are in need of repairs or renovations. In employment, the vacancy rate indicates the number of positions the company has allocated for the performance of certain duties that do not currently have an employee functioning in that space.
The vacancy rate is calculated by taking the number of vacant units, multiplying that number by 100, and dividing that result by the total number of units. The vacancy rate and occupancy rate should add up to 100%.
Analysis of Vacancy Rates
A property owner can use vacancy rates as a metric for analysis. Changes in the percentage of vacant units versus occupied units, the length of time occupied units are remaining active, or other rental conditions can provide guidance regarding how competitive a property owner has set the property. If a property owner is charging significantly more or less than the rest of the rental market, this may be reflected in the overall vacancy rates. It can also provide information regarding the effects of price changes or advertising on unit occupancy.
Vacancy rates are tabulated by the U.S. Census Bureau, along with information regarding the amount being charged for rent and details about the property. This information can be used, in conjunction with other information, to help determine the health of an economy by examining changes in the number of units available and the average prices of available or occupied units.