How is Occupancy Calculated in Real Estate?

Table of Contents

1. How is Occupancy Calculated in Real Estate?
2. Occupancy Calculator
3. What is Occupancy Rate with an Example?
4. Ways to Increase Occupancy in Rate in Multifamily
5. What is a Good Occupancy Rate in Multifamily?
6. Why Occupancy is Important in Multifamily Real Estate
7. Frequently Asked Questions About How is Occupancy Calculated in Real Estate
8. How is Occupancy Calculated in Real Estate - Conclusion
9. Sources

Occupancy is simply the number of rental units occupied in a given property. Occupancy is relevant in many real estate types, such as single-family rentals, multifamily apartments, retail, senior living facilities, student housing, and office real estate. 

In this article, we’ll discuss how occupancy is calculated in real estate and ways to increase your occupancy rate in assets like multifamily real estate.

How is Occupancy Calculated in Real Estate?

Real estate occupancy is a very simple calculation, and many times can be done without a calculator.

The occupancy rate formula is calculated in the following way:

(Total Number of Occupied Units / Total Number of Units)

Occupancy Calculator

To use the occupancy calculator below, simply input the total number of units occupied and the total number of units for the subject apartment community.

When you complete, click the “Calculate” button below.

What is Occupancy Rate with an Example?

Let’s say that we have a 100-unit apartment building and only 78 units are occupied; that would mean that we have a 78% occupancy. This example is relatively simple and doesn’t need a calculator, as the denominator is an even number that people can easily conceptualize.

Now let’s say we have a 223-unit apartment community with 212 units occupied. To determine the occupancy, we would divide 212 units by 223 units, reflecting a 95% occupancy. 

Next, let’s look at how we can influence our occupancy rate in a multifamily property. Operators run those same numbers against the breakeven occupancy a property can sustain before cash flow turns negative.

Ways to Increase Occupancy in Rate in Multifamily

There are many to increase occupancy in a multifamily property; below are some of the ways in which you can achieve that higher occupancy rate:

• Making interior and exterior physical improvements to upgrade the finishes of a unit to market or above market standard

• Strong lead flow and marketing budget

• Strong property management that attends to tenant “work order” requests and focuses on resident satisfaction and retention

• Friendly and competent leasing agent to answer calls and follow up with and qualify prospective tenants

• Quickly make units lease-ready upon new vacancies

• Making rent concessions to attract new prospective tenants

• Asking rents below or at market rent

Let’s now look at what a good occupancy rate would look like for a multifamily property in most U.S. markets.

Operators tracking these moves also pull the T3 and T12 in real estate to verify the numbers in the rent roll match collections.

What is a Good Occupancy Rate in Multifamily?

A good occupancy rate for a multifamily property would be 90% plus. Most apartments in most U.S. markets can achieve this as apartment units are in high demand due to various factors. Factors such as high-interest rates which lower home ownership, strong domestic migration, and strong migrant migration, as well as the high cost to build. The price discipline that holds occupancy steady comes from how property managers evaluate rental rates against ongoing market shifts. 

Why Occupancy is Important in Multifamily Real Estate

Occupancy is very crucial in multifamily real estate because with a low occupancy or without tenants occupying units, there is no cash flow. Still, worse, the property is burning cash at a large deficit. 

Having strong paying tenants and maintaining a 90% plus occupancy is the first thing you need as an operator/landlord. Once you achieve a stable occupancy rate, you can focus on optimizing the property’s operations, but until then, you need cash flow to stop the bleeding.

The right denominator matters too, since economic occupancy versus physical occupancy can yield very different signals on the same property.

Frequently Asked Questions About How is Occupancy Calculated in Real Estate

How is Occupancy Calculated in Real Estate - Conclusion

Being able to calculate occupancy quickly is a great way to get a good quick snapshot of the operation of any cash-flowing rental property. You only need two numbers to perform the calculation, the number of units occupied and the total number of units.

Sources

1. Census Bureau — Housing Vacancies and Homeownership (CPS/HVS)
2. NMHC — Quarterly Survey of Apartment Market Conditions
3. NMHC — Apartment Industry Quick Facts
4. IRS — Publication 527, Residential Rental Property