Today, we take a closer look at two essential concepts in real estate: vacancy rates and availability rates. Keep reading to learn what vacancy rates and availability rates are and what’s the difference between these two metrics.
What Is a Vacancy Rate in Commercial Real Estate?
The term “Vacancy rate” refers to the percentage of available units or square feet in a rental property.
Vacancy rate is calculated by dividing the number of vacant units or square feet by the total number of units or square feet and then multiplying the result by 100.
Let’s illustrate this formula with an example.
Imagine a building of 400 units where 360 units are occupied. What’s the vacancy rate? Here’s how you calculate this metric step by step:
- First, we have to find the number of vacant units, so we subtract 360 from 400. The result is 40.
- Now that we know the number of vacant units, we divide it by the number of total units, so 40/400=0.1
- Finally, we take the result of the previous division (which was 0.1) and multiply it by 100.
- The vacancy rate of the building in our example is 10% (0.1 x 100).
What Is an Availability Rate in Commercial Real Estate?
Availability rate, also known as availability index, refers to the proportion between two values:
- The total space available in a market.
- The sum of vacant space which is immediately available and space already being marketed because it’s occupied by a tenant whose lease is about to expire.
To make this concept easier to understand, let’s imagine a market of 200,000 square feet where 20,000 feet is available immediately and 10,000 is available within three months.
Here’s how to calculate the availability rate in the above scenario, step by step:
- First, we add the space immediately available plus the space that will become available in the short term. So, in our example, 20,000 + 10,000 = 30,000
- Now we divide the previous value by the total space available in the market. In other words, 30,000 / 200,000 = 0.15
- Finally, we take that value and multiply it by 100. So 0.15 x 100= 15. The availability rate in our example is 15%.
The Difference Between Vacancy Rates and Availability Rates
In conclusion, the vacancy rate refers to the percentage of units or space available in a market or in a rental unit, while the availability rate aims to illustrate the amount of space in a market available for deals either immediately or in the short term.
These are different instruments used for different purposes. If you want to learn more about how to interpret these and other metrics as they apply to your property, or to any property you’re interested in, contact Chantel Aguilar today.
To learn more about key commercial real estate concepts, we suggest reading: “Usable vs Rentable Square Footage: What Is the Difference?”
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