Vacancy rate is usually though of as a measure of apartments not occupied in term of real physical occupancy. There are other vacancy measures which reflected revenues lost or not generated. These other vacancy measures are usually grouped into physical vacancy; segregating different measures of vacancy provides a better understanding of the behaviours.

Physical Vacancy and Economic Vacancy.

Physical vacancy, is the percentage of space not occupied not or during a period, usually one year. This is a very simple measure. For instance one month of physical vacancy out of a year for one unit is 8.3% or 1 month vacancy in a four-plex in a year is 2%.

This measure does not take into account any other loss of revenue which deviates from the set rates. An additional and better measure to use in conjunction with physical vacancy is Economic vacancy.

Economic Vacancy, measures revenue lost or opportunity revenue not realized. This vacancy comes in the form of revenue lost due to concessions or incentives to lower physical vacancy. If tenants are enticed to lease with for instance a lower rent, or a move in special this economic loss is a vacancy. Units used for other purposes such a manager quarters are an economic loss as well, even though it occupied because it is not available to lease. Economic vacancy is a better measure of the current rental market. Its not very easy to compile this data and represent it but it can be reflected in physical vacancy by adjusting physical vacancy, by months of rent lost or gained, by the cost of the revenue lost or not generated.

When managing, selling or buying income multifamily properties in Phoenix take into account economic vacancy for a more accurate assessment of the asset performance.

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