Vacancy rate is the percentage of rentable space in a property, market, or portfolio that is unoccupied and available for lease at a given point in time. It is calculated as vacant space divided by total rentable space. Operators read it as the primary gauge of supply and demand balance in a market.
How Is Vacancy Rate Calculated?
Vacancy rate is calculated by dividing vacant rentable space by total rentable space, then multiplying by 100. The physical formula is Vacancy Rate = Vacant Space / Total Rentable Space. A 100,000 square foot building with 12,000 square feet empty carries a 12% physical vacancy rate. Vacancy rate and occupancy rate always sum to 100%.
There are two distinct measures. Physical vacancy counts empty units or square footage. Economic vacancy measures lost rent, calculated as (Gross Potential Rent - Actual Collected Rent) / Gross Potential Rent, per FNRP. Economic vacancy runs higher than physical vacancy because it also captures concessions, free-rent periods, model units, and delinquent tenants who occupy space without paying full rent.
Measure | Formula | Captures |
Physical vacancy | Vacant space / Total rentable space | Empty units only |
Economic vacancy | (GPR - Collected Rent) / GPR | Empty units plus concessions, free rent, delinquency |
Occupancy rate | 1 minus physical vacancy | Space that is leased |
Lenders and underwriters weight economic vacancy because it reflects income available to service debt. A unit that is occupied but not paying does not support a loan payment, so the physical count alone overstates real income.
Why Vacancy Rate Matters
Vacancy rate matters because it drives both rent trajectory and asset value. When vacancy rises, landlords lose pricing power and concede on rent and free months; when it falls, they raise rents. A market's vacancy rate relative to its long-run average is the fastest read on whether an operator is negotiating from strength or weakness.
Vacancy also varies sharply by property type, which is why a single national number misleads. In Q1 2026 the U.S. office vacancy rate stood at 18.6% per CBRE, while industrial held at 7.0% per Cushman & Wakefield, multifamily sat at 4.8% per CBRE, and shopping center retail was 5.9% per Cushman & Wakefield, below its 7.4% historical average. An underwriter compares a subject property to its property-type and submarket benchmark, not to the market as a whole.
Example
A 200,000 square foot office building has 170,000 square feet leased and 30,000 square feet vacant. Physical vacancy is 30,000 / 200,000, or 15%. Now suppose one tenant occupying 20,000 square feet has a six-month free-rent period and pays nothing this year, and gross potential rent is $6,000,000.
Component | Value |
Total rentable space | 200,000 sq ft |
Vacant space | 30,000 sq ft |
Physical vacancy rate | 15% |
Gross potential rent | $6,000,000 |
Rent lost to vacancy | $900,000 |
Rent lost to concession | $300,000 |
Economic vacancy rate | 20% |
Physical vacancy reads 15%, but $1,200,000 of the $6,000,000 potential rent is uncollected, so economic vacancy is $1,200,000 / $6,000,000, or 20%. The five-point gap is the concession, and it is the number that flows through to net operating income.
Variations and Edge Cases
Vacancy rate behaves differently by property type, measurement basis, and market scope, so the same figure can signal health or distress depending on context. The table below lists the variants an analyst should confirm before comparing one vacancy number to another.
Variant | Treatment |
Direct vs sublease vacancy | Sublease space is vacant but marketed by a tenant, not the landlord; it depresses effective rents |
Availability rate | Includes space marketed but still occupied; runs higher than vacancy |
Stabilized vacancy | The structural floor a market cannot lease below, often 4% to 8% for healthy markets |
Market vs property vacancy | A single asset can outperform or lag its submarket benchmark |
Shadow vacancy | Leased space that is dark and unused; invisible in physical counts |
The most common error is comparing vacancy across property types or markets without adjusting the benchmark. A 7% vacancy rate is tight for office and loose for multifamily.
Vacancy Rate vs Availability Rate
Vacancy rate is often confused with availability rate, and they measure different things. Vacancy rate counts only space that is physically empty right now. Availability rate counts all space being marketed for lease, including occupied space where the current tenant is leaving soon or offering a sublease. Availability is always equal to or higher than vacancy.
The gap between the two is a forward indicator. When availability climbs well above vacancy, tenants are signaling future move-outs, and vacancy tends to rise over the following quarters. Brokers watch the spread to anticipate where a submarket is heading rather than where it stands today. An underwriter uses availability, not vacancy, to stress-test near-term rollover risk.
Frequently Asked Questions
How do you calculate vacancy rate?Vacancy rate is vacant rentable space divided by total rentable space, times 100. A 100,000 square foot building with 12,000 square feet empty has a 12% physical vacancy rate. Economic vacancy divides uncollected rent, including concessions and delinquency, by gross potential rent, and usually runs higher.
What is the difference between physical and economic vacancy?Physical vacancy counts empty units or square footage. Economic vacancy measures lost rent, so it also captures concessions, free-rent periods, and non-paying tenants who occupy space. Economic vacancy is almost always higher and is the figure lenders underwrite because it reflects real income.
What is a good vacancy rate in commercial real estate?A good vacancy rate depends on property type. In Q1 2026 U.S. multifamily sat near 4.8% and industrial near 7.0%, while office ran at 18.6%. Analysts compare a property to its property-type and submarket benchmark rather than to a single national figure.
Related Terms
Submarket
Rent Comparables
Effective Gross Income
Net Operating Income
Pro Forma