What is a 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 a property is not renting well while low vacancy rates can point to strong rental sales.
BREAKING DOWN Vacancy Rate
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%.
In real estate, the vacancy rate most often represents 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 applies to the number of open positions a company currently has in comparison to the total number of positions available throughout the company. In other words, an employment-related vacancy rate can indicate the proportion of positions a company has allocated for the performance of certain duties that do not currently have an employee functioning in that space. When related to other employment metrics, such as turnover or employee longevity, a vacancy rate can provide indications as to how successful a company is at advertising and filling open positions and retaining current employees.
Analysis of Real Estate 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 made 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.
While vacancy rates are commonly used to assess an individual property's performance, such as a hotel monitoring its nightly vacancy rate, aggregate vacancy rates are also used as economic indicators of a real estate market's overall health. Many firms servicing the commercial real estate space gauge the strength of the overall industry using metrics such as vacancy rates, rental rates and construction activity. Real estate firm Jones Lang LaSalle, for example, reported in January 2018 that the U.S. office market registered the strongest quarterly occupancy growth since late 2015 in the fourth quarter of 2017. The firm also said it expects vacancy to continue a steady rise in 2018 and into 2019 due to a development boom that's outpacing occupancy gains despite strong overall demand in the nation's office market. Of the largest metropolitan regions in the country, San Francisco's office market boasted the lowest vacancy rate in the quarter, according to the data, at only 8.1%. New York's Westchester County, meanwhile, registered the highest vacancy rate at 24.9%.
Residential Vacancy Data
The U.S. Census Bureau compiles its residential vacancy data in a quarterly report that provides three key figures: the rental vacancy rate, homeowner vacancy rate and homeownership rate. As of the report released Jan. 30, 2018, national vacancy rates were 6.9% for rentals and 1.6% for homeowner housing. Both figures have remained fairly sustained in recent years after falling from all-time highs reached during the U.S. housing crisis, when rental vacancies peaked at 11.1% in 2009 and homeowner vacancies peaked at 2.9% in 2008.
In the quarterly report, the U.S. Census Bureau also collects data regarding rental prices and property information. Much like data for commercial property markets, this information can be used, in conjunction with other information, to help determine the health of an economy's residential real estate market by examining changes in the number of units available and the average prices of available or occupied units.