📘 What is Economic Vacancy?

Economic Vacancy refers to the percentage of potential rental income that a property fails to collect due to vacant units, non-paying tenants, or under-market rents. Unlike physical vacancy, it accounts for financial losses rather than just empty units.

It gives a clearer picture of a property's income performance from an investor's standpoint.

📌 When and Why It’s Used

Investors and property managers use economic vacancy to assess how much income is being lost—not just from vacant units, but also from concessions, delinquent rent, or underutilized space. It’s a more precise tool for evaluating cash flow potential.

This metric is especially useful during underwriting, budgeting, and analyzing the true return on investment.

🧮 How It’s Calculated or Applied

Economic vacancy is calculated by subtracting actual rental income from potential gross rental income, then dividing by the potential income. The result is a percentage representing lost income.

This figure helps determine how efficiently a property is being operated and whether corrective actions like marketing, rent adjustments, or tenant screening are needed.

The lower the economic vacancy rate, the better the property is performing financially.

✅ Pros

• Provides a true financial snapshot of rental income
• Highlights areas of income leakage (e.g., concessions, non-paying tenants)
• Helps improve budgeting, forecasting, and asset management decisions

⚠️ Cons

• Requires detailed and accurate financial records
• Can be affected by temporary concessions or lease-up periods
• May be misunderstood if confused with physical vacancy