What is vacancy rate and how do I measure the cost of vacancy?
Vacancy rate is vacant lettable units or area divided by total lettable units or area, multiplied by 100. The cost of vacancy is the rent the vacant space would have earned, plus holding costs you still pay on it.
Formula in words: vacant area divided by total area. Vacancy cost equals market rent for the vacant space multiplied by the time vacant, plus costs such as rates, utilities and security.
It matters because it turns a percentage into a currency amount that can be compared with letting costs and incentives.
Commonly misread:
- Treating all vacant units equally when large or poor units cost more.
- Ignoring how long each unit has been vacant.
- Using asking rent that the market does not actually pay.
Track vacancy duration and the reason each unit is empty.
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