What is the '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.

RELATED TERMS
  1. Effective Gross Income - EGI

    The amount of income produced by a piece of property, plus miscellaneous ...
  2. Real Estate Investment Group

    An organization that builds or buys a group of properties and ...
  3. Occupancy Rate

    In real estate, the number of units in a building that have been ...
  4. IRS Publication 527 - Residential ...

    A document published by the Internal Revenue Service (IRS) that ...
  5. Income Property Mortgage

    A loan given to an investor to purchase a residential or commercial ...
  6. Rent Expense

    The cost incurred by a business to utilize property. Business ...
Related Articles
  1. Investing

    Top 10 Features Of A Profitable Rental Property

    Owning rental property is a tough business. Here are 10 things you should consider before investing in an income property.
  2. Investing

    Top 10 Features of a Profitable Rental Property

    Looking to purchase a rental property? These are the factors that should be considered for income-producing real estate.
  3. Investing

    Tips For The Prospective Landlord

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

    8 Must-Have Numbers For Evaluating A Real Estate Investment

    These calculations can help you figure out if a particular property will be a valuable investment.
  5. Investing

    Rent Revenue: A Growing Income Source for U.S. Households

    Never before has rental revenue represented such a large share of income gained by American households.
  6. Retirement

    The Income Property: Your Late-In-Life Retirement Plan

    You're nearing retirement age and you don't have the nest egg you need. Here's how an income property can help you make up the shortfall.
  7. Investing

    World's Retail Mecca Hits the Skids (TIF, SKS)

    Manhattan's iconic Fifth Avenue suffered record-high vacancy rates in the third quarter as retail companies balked at surging rent expenses.
  8. Taxes

    Tax Rules For Renting Out Your Vacation Home

    Here's a rundown of the specific tax rules that apply to homeowners renting out a vacation property.
  9. Taxes

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  10. Investing

    4 Ways to Value a Real Estate Rental Property

    Learn to evaluate real estate and get into the investment game.
RELATED FAQS
  1. Is it possible to refinance a house you're renting out?

    Find out whether it is possible to refinance rental property. Lenders have strict qualifying standards and expect owners ... Read Answer >>
  2. Does homeowners insurance cover vandalism?

    Discover how vandalism is covered under most all-perils home insurance policies except if the home has been vacant for a ... Read Answer >>
  3. What is the importance of the capitalization rate in real estate investing?

    Find out why an investment property's capitalization rate is important to real estate investors and how it can be used to ... Read Answer >>
  4. What is the difference between capitalization rate and rent?

    Find out the difference between capitalization rate and rent and why they are so important to making wise investments. 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