Definition
Occupancy measures how much of a property is currently leased and in use. In multifamily, it is most often expressed as the percentage of total units that are occupied. In commercial properties, it may be measured by leased square footage.
How It’s Measured
The most common metric is physical occupancy, but investors also track economic occupancy to capture the impact of concessions, delinquency, and rent loss.
Common formulas
- Physical Occupancy (%) = Occupied units (or leased SF) ÷ Total rentable units (or total rentable SF)
- Vacancy (%) = 1 − Physical Occupancy (%)
- Economic Occupancy (%) = Collected (or effective) rental revenue ÷ Gross potential rent
Physical vs Economic Occupancy
Physical occupancy answers: “Are the units filled?â€
Economic occupancy answers: “Is the rent actually being realized?â€
- A property can be 95% physically occupied but 90% economically occupied if concessions, non-payment, or heavy bad debt reduce collections.
- Conversely, a property can have slightly lower physical occupancy but strong economic occupancy if rents are high and collections are clean.
Why It Matters
Occupancy is one of the fastest indicators of demand, leasing execution, and income stability. Because NOI is driven by collected revenue, sustained occupancy problems can rapidly compress value.
Investor Uses
- Underwriting: set stabilized occupancy assumptions and vacancy/credit loss.
- Lease-up planning: forecast how quickly a renovated or newly delivered property will fill.
- Asset management: monitor leasing velocity, renewals, and operational issues.
- Risk management: identify demand shocks, competitive pressure, or management failure early.
Example
A 120-unit multifamily property has 114 units occupied:
- Physical Occupancy = 114 ÷ 120 = 95%
- Vacancy = 1 − 0.95 = 5%
If the property’s gross potential rent is $240,000 per month but it collects $225,600 after vacancy, concessions, and bad debt:
- Economic Occupancy = 225,600 ÷ 240,000 = 94%
What Drives Occupancy
- Pricing and concessions: pushing rents too far can reduce demand; concessions can temporarily boost occupancy.
- Marketing and lead conversion: traffic, response time, tours, approvals, and follow-up.
- Product quality: unit turns, amenities, curb appeal, and maintenance response times.
- Resident retention: renewals, service quality, and renewal pricing strategy.
- Market conditions: job growth, new supply deliveries, seasonality, and migration.
Common Pitfalls
- Over-focusing on physical occupancy: high occupancy with heavy concessions may not be healthy.
- Misclassifying units: “down units†or unrentable units can distort reported occupancy.
- Ignoring seasonality: leasing velocity often varies by month and market.
- Not separating vacancy vs credit loss: empty units and non-payment require different solutions.
- Bad denominator: using total units when some are intentionally offline for renovation.