What is Occupancy Rate?
Occupancy rate is the percentage of a rental property's available units (or time) that are occupied by paying tenants. It is the inverse of vacancy rate: Occupancy Rate = 100% - Vacancy Rate. A property with 95% occupancy has 5% vacancy. For single-family rentals, occupancy rate measures the proportion of the year the property is rented and generating income.
Occupancy rate is a key performance indicator for rental property investors and is closely watched by lenders evaluating multifamily and commercial property loans. Higher occupancy means more stable income, better DSCR, and lower risk.
Physical vs. economic occupancy
Physical occupancy counts the number of occupied units regardless of payment status. Economic occupancy measures the actual income collected as a percentage of gross potential rent. A building can have 95% physical occupancy but only 85% economic occupancy if some tenants are behind on rent. Economic occupancy is the more meaningful metric because it reflects actual cash flow.
Occupancy benchmarks
Healthy occupancy rates vary by property type: single-family rentals (95%+), multifamily apartments (92-96%), office (85-95%), retail (90-96%). Markets with strong job growth and limited new construction tend to have higher occupancy rates. Markets with oversupply from recent building booms may see lower rates.
Occupancy and deal evaluation
When evaluating a multifamily property for purchase, the current occupancy rate tells you about the property's competitive position. Below-market occupancy may indicate management problems, deferred maintenance, or below-market rents that could be raised. Above-market occupancy may indicate underpriced rents or a particularly well-managed property. Compare to neighborhood averages from local property management reports or census data.