The occupancy rate is the ratio of a property’s occupied square meters over the total leasable (excluding non-leasable space) square meters of the property:
Occupancy Rate = Occupied leasable space/Total leasable space
For example, an office building with 10,000 square meters of leasable space that has 9,000 square meters of occupied space will have an occupancy rate of 90%.
The occupancy rate is a very important metric in analysing the rental income of a commercial property investment. In the case of apartment property investment the occupancy rate is measured usually using units not square meters. For example, an apartment building of 100 units in total with 80 units occupied will have an occupancy rate of 80%.
The vacancy rate, as the term implies represent the percent of leasable space that is vacant and is calculated as:
Vacancy Rate= 1 – occupancy rate
Thus the vacancy rate for the office building in the example above is: 1-90% = 10%, while in the case of the apartment building is: 1-80% = 20%.
At the market level the occupancy rate is calculated as:
Market Occupancy Rate= Occupied stock/Total Stock
Similarly, the market vacancy rate is calculated as:
Market Vacancy Rate= Vacant stock/Total Stock
In the case of apartment units, the market vacancy rate is calculated as the ratio of total vacant units in the market over the number of total units in the market (the sum of both vacant and occupied).
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