Ask Henry

Vacancy Rate Calculation

Hello Henry!

Great Mag & Blog. Thanks for your hard work.

Let me ask you, do you calculate vacancy based on a time period or unit basis for muti-family/commercial properties. I have a 20 unit mixed use building, with 3 retail spaces and 17 apartments. One of my retail spaces and 2 apartments are vacant going on 3 months now. So is my vacancy rate 6.6% or 24.9%?

G James Gervas

Dear James:

Thanks for your kind words.

Normally vacancy rates are reported on an annual basis. It is not based on your current rate but rather on an historical fact. It is like the income and expense statement where you are forecasting a typical year, rather than reporting a "blip". Most likely it will not be either of the figures you are suggesting, but rather, a composite of the past years average vacancies. For example, if your monthly vacancy rate is approximately 24.9% of the total space, for 3 months, but nil for the rest of the year, the vacancy rate would be 6.2% for the past year. (24.9% x 3 months = 74.7 + 0 divided by 12 months = .0622). However, you should be considering more than a single previous year.