Economic Vacancy
Economic vacancy is all the rent a property does not collect, measured against its full potential rent. It includes empty units plus unpaid rent, move-in concessions and units used by staff or as models. It is almost always higher than physical vacancy, and it is the figure underwriters plan around.
How to calculate economic vacancy
Economic vacancy (%) = (Gross potential rent − Rent collected) ÷ Gross potential rent × 100
Example: A property has $2,000,000 of gross potential rent and collects $1,820,000. Its economic vacancy is $180,000, or 9 percent, even though only 5 percent of its units are physically empty.
Why economic vacancy matters
Occupancy reports count units, not dollars. A property can be 95 percent occupied and still lose significant income to concessions, delinquent tenants and non-revenue units. Economic vacancy captures all of it, which is why it ties to the income on the T12 and physical occupancy does not.
Lenders and investors underwrite to economic vacancy because it reflects the cash that actually reaches the owner. A widening gap between physical and economic vacancy is an early warning sign, often pointing to rising concessions or collection problems before occupancy drops.
Economic Vacancy vs. Physical Vacancy
Physical vacancy is the share of units or space that is empty. Economic vacancy is the share of potential rent that is not collected, for any reason. A fully leased building with heavy concessions has low physical vacancy and high economic vacancy.
Where it matters by property type
Economic vacancy is a core measure in multifamily and affordable housing underwriting, and it is tracked separately for each income stream in mixed-use properties.
How Smart Capital Center handles economic vacancy
Smart Capital Center's AI agents reconcile the rent roll against the T12 to separate empty units, concessions, unpaid rent and non-revenue units, so the economic vacancy in the model matches the cash the property collects.
Frequently asked questions
What is included in economic vacancy?
Economic vacancy includes rent lost to empty units, move-in concessions and free rent, unpaid rent and bad debt, and units that produce no rent, such as model units, offices or staff housing. Some underwriters also include loss to lease, although many track it as a separate line.
What is a normal economic vacancy rate?
It varies with property type, market and property condition, so there is no single benchmark. Underwriters compare a property's economic vacancy with its own history on the T12 and with comparable properties nearby. Lenders often apply a minimum vacancy assumption even when a property is fully occupied.
Why is economic vacancy higher than physical vacancy?
Physical vacancy only counts empty space. Economic vacancy adds every other reason rent goes uncollected, including concessions, delinquent tenants and non-revenue units. Because those losses exist even in fully occupied properties, economic vacancy is almost always the larger of the two numbers.