Definition
Turnover rate is the percentage of rental units that become vacant and require re-leasing during a specific period (typically annually). It measures tenant movement within a property and directly affects vacancy, operating costs, and net operating income (NOI).
Formula
- Turnover Rate (%) = (Number of move-outs during period ÷ Total units) × 100
Example
A 200-unit apartment property experiences 60 move-outs in one year.
- Turnover Rate = (60 ÷ 200) × 100 = 30%
Why Turnover Rate Matters
- Vacancy impact: More turnover typically increases downtime between leases.
- Make-ready costs: Cleaning, painting, repairs, and upgrades add expense.
- Leasing costs: Advertising, concessions, and broker commissions may apply.
- Revenue disruption: Lost rent during unit turns reduces effective gross income.
- Operational strain: High turnover increases management workload.
Typical Turnover Benchmarks
- Stabilized multifamily: 35%–55% annually (varies by market and asset class)
- Student housing: Often higher due to academic cycles
- Single-family rentals: Often lower due to longer tenancy
- Office/retail: Measured differently (lease expiration-based rather than annual move-outs)
Financial Impact Example
If average make-ready cost per unit is $2,000 and 60 units turn:
- Turn costs = 60 × $2,000 = $120,000
Additional vacancy loss during re-leasing further impacts NOI.
Causes of High Turnover
- Below-market amenities or outdated finishes
- Poor property management or maintenance response
- Aggressive rent increases
- Market competition and new supply deliveries
- Short-term lease structures
Strategies to Reduce Turnover
- Strong resident engagement and retention programs
- Preventative maintenance
- Balanced rent growth strategy
- Renewal incentives vs. turnover costs comparison
- Improved amenities and community experience
Turnover vs. Vacancy Rate
- Turnover rate: Measures tenant movement frequency.
- Vacancy rate: Measures unoccupied units at a given time.
A property can have high turnover but low vacancy if units are quickly re-leased.
Underwriting Considerations
- Model realistic turnover assumptions by asset type.
- Include make-ready and leasing costs in operating expenses.
- Account for downtime between leases.
- Stress-test renewal rates in competitive markets.
Common Pitfalls
- Underestimating turn costs.
- Assuming renewal rates will remain constant after rent increases.
- Failing to analyze seasonality.
- Ignoring market supply pipeline effects.