The percentage of units not generating rent.
The Vacancy Rate is the percentage of rentable units (or square footage) not currently leased and producing rent. It's the single most direct measure of demand for a property — and one of the most important underwriting inputs in real estate.
There are two flavors of vacancy: physical vacancy (units literally empty) and economic vacancy (units empty + units occupied but not paying market rent — concessions, free rent periods, model units, employee units, non-paying tenants). Physical vacancy is what you see on the rent roll; economic vacancy is what shows up in the bank.
For underwriting, lenders typically use a combined assumption of physical vacancy + credit loss of 5–8% on stabilized multifamily, 5–10% on small commercial, and substantially higher on transitional / value-add deals where the lease-up plan hasn't played out yet. These numbers come from market data, not from what the seller wants to project.
Vacancy varies by market, class, and season. Urban Class A multifamily in a top market might run 3–5% vacancy. Suburban Class B might run 5–8%. Class C in a softer market might run 10–15%. Within a single year, vacancy can swing 200–300 bps seasonally — peak demand is usually May–August, with December–February being weakest.
High vacancy can be a temporary problem (one big tenant moved out, lease-up in progress) or a structural problem (market oversupply, declining submarket, deferred maintenance making units unrentable). Lenders look at trailing 12 months of vacancy plus submarket trends to distinguish the two — a property that was 5% vacant for two years and just spiked to 12% gets underwritten differently than a property that's been 15% vacant for three years.
| Total units | 40 |
| Physically vacant units | 3 |
| Physical vacancy rate | 7.5% |
| Units occupied but with concessions / free rent | 4 |
| Concession impact (1 mo free, prorated) | ~2.0% lost income |
| Down units (offline for repair) | 1 |
| Economic vacancy ≈ 7.5% + 2.0% + 2.5% | ~12.0% |
For stabilized multifamily, 5–8% is normal. Below 5% is strong; above 10% suggests issues — either market, condition, or pricing. Office and retail vary much more widely.
Physical = units empty. Economic = units empty + units not paying market rent (concessions, free rent, down units, employee units). Economic vacancy is always higher than physical.
Strict physical vacancy doesn't — units are either leased or not. Economic vacancy includes model units, employee units, and other non-revenue-producing units.
Either point-in-time (vacant units ÷ total units on a date) or weighted-average (total vacant days ÷ total available days × 100). Underwriters typically use weighted-average for accuracy.
Most lenders apply a market-based vacancy assumption regardless of trailing actuals — typically 5–8% on stabilized multifamily. Strong trailing-12 performance below 5% might earn a slightly lower number.
Matrix structures loans against realistic vacancy assumptions — so the financing closes and survives the cycle, not just the pro forma.
