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Understanding the Vacancy Rate in Real Estate

Understanding the Vacancy Rate in Real Estate

Created27.08.2025, 12.12

Updated27.08.2025, 18.03

If your rental income isn’t where it should be, vacancy might be the hidden reason, and knowing how to track it can make a significant difference. Calculating and monitoring vacancy rates over time reveals patterns and highlights units that need attention. Different property types have different healthy vacancy ranges, so knowing what applies to your rental is important for setting realistic goals. Finally, reducing vacancy and maximizing returns depends on strong tenant management, smart marketing and pricing, and thoughtful upgrades that make your property more attractive. Each of these areas works together to keep your units filled and maintain a steady income.

The Difference Between Physical and Economic Vacancy

The vacancy rate refers to the percentage of all available rental units (residential or commercial) that are vacant or unoccupied at a given time. Understanding the difference between physical and economic vacancy rates is important because they don’t always show the same thing. A physical vacancy is just the number of empty units in a building, while an economic vacancy also includes units that aren’t bringing in full rent. This can happen if a tenant isn’t paying rent or if you offered discounts. So, a building might look full, but you could still be losing money.

Vacancy rate affects your rental income and cash flow right away. If more units are empty, you collect less rent, and this hurts your income. However, even with full units, economic vacancy can cut into your cash flow because of missed payments or free rent deals. This means you have less money to cover expenses or make a profit. Keeping your vacancy rate low, both physically and economically, helps you stay financially stable and plan better.

Vacancy rate also plays a big role in how much your property is worth. Investors and lenders look at your net income to decide value, and vacancy lowers that income. In 2024, properties with high vacancy rates were often valued lower because they brought in less cash. This can affect your ability to refinance or sell at a good price. So, controlling vacancy not only protects your monthly income, it also protects your long-term investment.

How to Calculate Vacancy Rate in Real Estate

To calculate the vacancy rate, you need to know how many days a unit stayed empty. The typical vacancy rate rental property owners experience can vary, but there is a formula, which is different from occupancy rates and tenant turnover. Rental property vacancy rate formula: for one unit, take the number of days it was vacant and divide that by the total days in the year, then multiply by 100. For example, in 2024, if a unit was vacant for 23 days out of 365, the vacancy rate would be about 6.3%. For multiple units, add up all the vacant days across each one and divide by the total possible days. So in 2024, if three units had a total of 58 vacant days out of 1,095 possible (365 days × 3 units), the vacancy rate would be 5.3%. This tells you how well your property is being used and shows how property management affects performance.

Once you calculate the vacancy, you should track it every month or quarter. One way to do this is with a spreadsheet. Start by listing the move-out and lease start dates for each unit. Subtract them to find how many days it stayed empty. Add a column for the month so you can group the data over time. Then use a pivot table to add it up and make a chart to see trends. In 2025, many landlords also use tools like Stessa or AppFolio, which can track this for you automatically. These platforms are especially helpful when comparing your numbers to the average vacancy rate for rental property in your market.

Even with the right tools, vacancy data isn’t always easy to understand. One problem is telling the difference between short-term and chronic vacancy. In general, short-term means 30 days or less, like a quick gap between tenants. However, if a unit stays empty for over 90 days in 2025, or has this happen more than twice a year, it’s considered chronic. That may mean your rent is too high, or the property needs fixing. You can highlight long vacancies in red on your dashboard, so it’s easier to focus on the units that need attention.

What is a Good Vacancy Rate for Rental Property?

A healthy rental property vacancy rate depends on the type of rental property you own. For single-family homes, a home vacancy rate between 5% and 8% is considered normal in 2025, especially in suburban areas where demand is steady. Multifamily properties, like apartment buildings, usually range from 5% to 10%, but anything over 10% may mean your property is underperforming. This happens because multifamily rentals often have higher turnover, especially in cities. Student housing or short-term rentals can see vacancy rates of 10% to 15% because tenants move more often, like during summer breaks.

High vacancy can hurt your rental rates and overall profits. Even a 5% vacancy means you lose $5,000 out of $100,000 in yearly rent. You still pay for things like utilities, maintenance, and taxes, even if the unit is empty. You may also need to spend more on advertising, repairs, or rent discounts to fill the space. All of this lowers your net income and return on real estate investment. In 2025, properties with high vacancy rates often appraise lower too, because less income means a lower property value.

Besides just counting empty units, you also need to look at economic vacancy. This tells you how much rent you’re actually collecting, not just whether the unit is full. A unit could be occupied, but if the tenant has a rent discount or isn’t paying on time, your income still drops. That’s why it’s important to plan using both physical and economic vacancy. In 2025, more landlords are tracking this to set better budgets and avoid surprises. Curious about your property's value? Get a free rental valuation from TEKCE and see how much you could earn.

Best Strategies to Reduce Vacancy Rates for Rental Properties

Reducing vacancy and earning more from your rental property depends on smart planning and consistent effort. You need to focus on keeping current tenants happy, attracting new ones quickly, and making your property more desirable. These strategies help you avoid long gaps between leases and protect your cash flow. By improving management, adjusting your pricing, and adding the right upgrades, you can lower your vacancy rate and increase your rental income over time. You can also check out our leaflet to learn more about the services we provide, “Owner’s Guide”.

Keep Good Tenants with Strong Management Practices

You can avoid many vacancies just by keeping your current tenants longer. Start with a good move-in experience by giving them a clean unit, completing all repairs, and sharing helpful local info. Be quick with maintenance; responding in 24 to 48 hours builds trust and shows you care. Talk to your tenants early about renewals, around 90 days before their lease ends. Offering small perks like a free cleaning or an appliance upgrade can motivate them to stay. You can also build better relationships through personal communication or even hosting small community events, which can lead to higher renewal rates and fewer empty units.

Use Smart Marketing and Fair Pricing to Fill Units Faster

To avoid long vacancies, your property needs to stand out and be priced right. Check similar rentals in your area and adjust your rent based on size, location, and features. Rents may also change with the seasons, so it helps to review prices often. Use great photos, clear descriptions, and even virtual tours to make your listings more appealing. Post across several platforms, including rental websites and social media, to reach more people. You can also offer flexible lease terms, like 12 or 24 months, to attract a wider range of renters. These steps make it easier to find tenants quickly and reduce the time your unit sits empty.

Add Upgrades and Amenities That Tenants Want

Even small property improvements can make a big difference in how fast your unit rents. Tenants often look for useful features like package lockers, smart-home tech, or pet-friendly options. Offering tiered amenities, such as gym access or coworking spaces, can help you attract different types of renters while also justifying slightly higher rent. You can also include extra services like cleaning or lawn care to boost the value of your property.