Occupancy rate is the percentage of a property that is leased — the basic utilization statistic of income real estate. Its usefulness depends on which occupancy is being quoted: physical, economic, and leased-versus-occupied figures can diverge meaningfully, and the gaps are where headline numbers mislead.
Reading occupancy precisely
Physical occupancy — space under lease as a share of total space — is the number marketing quotes. Economic occupancy — rent actually being collected as a share of gross potential rent — is the number that pays: free-rent periods, concessions, delinquencies, and below-market leases all open gaps between the two, so a property “95% occupied” during a concession-heavy lease-up may be collecting far less than 95% of potential rent. Related splits worth catching: leased versus occupied (signed leases not yet commenced flatter the leased figure — common in new deliveries), and portfolio-level occupancy that averages across strong and weak assets. Sector context calibrates the reading: stabilized apartments run in the mid-90s, hotels report daily occupancy with ADR and RevPAR alongside, and net-leased single-tenant assets are binary — 100% or 0% — which is why WALT and tenant credit replace occupancy as their vital signs. The metric’s analytical role: occupancy times rate drives revenue, so NOI analysis decomposes into the two; occupancy trends (and their gap to submarket averages, obtainable from market data) reveal asset trajectory faster than levels; and pro formas assuming occupancy above the submarket’s norm are projecting outperformance and should say why. In filings, same-property occupancy trends are among the cleanest operating disclosures REITs and non-traded programs provide.
Related terms
Net Operating Income (NOI) · WALT · Cap Rate · Single-Family Rental · Triple Net Lease (NNN)
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