Occupancy Rate: Real Estate Demand Indicator | Investment Glossary

What You Will Learn: You'll understand how Occupancy Rate measures the percentage of units generating revenue and serves as the primary indicator of demand strength. Learn the difference between physical and economic occupancy, how to interpret occupancy trends, and why high occupancy is essential for stable cash flow.

Definition

Occupancy Rate measures the percentage of available units that are rented and generating revenue. It's the most immediate indicator of demand strength and management effectiveness.

Formula

Occupancy Rate = (Occupied Units / Total Units) × 100

Example

Total Units: 200

Occupied Units: 192

Vacant Units: 8

Occupancy = (192 / 200) × 100 = 96.0%

Physical vs. Economic Occupancy

Physical Occupancy: Counts occupied units
Economic Occupancy: Accounts for actual rent collected (delinquencies, concessions)
Always focus on economic occupancy

Occupancy Benchmarks

Range	Assessment	Action
95%+	Excellent	Strong demand; consider raising rents
90-95%	Healthy	Normal stabilized occupancy
85-90%	Concerning	Investigate demand/competition issues
<85%	Problem	Serious demand weakness or mismanagement

What Drives Occupancy

Pricing Discipline

Rent at market or below? Concessions offered?

Property Condition

Well-maintained properties lease faster

Market Fundamentals

Employment growth, population trends

Management Quality

Leasing efficiency, tenant retention focus

Occupancy Trends: MHC vs. Self-Storage (2008-2024)

MHC - Highly Stable

Average: 94.8%

2008-2009 GFC: 93.2%

2024: 97.2%

Remarkably consistent; minimal year-to-year variation

Self-Storage - More Cyclical

Average: 88.7%

2010 Low: 76.0%

2021 Peak: 95.0%

2024: 92.5%

Wider swings due to shorter tenant duration

Key Difference

MHC occupancy remains above 92% even during recessions due to long tenant tenure (14-year average) and housing necessity. Self-storage experiences wider swings due to shorter tenant duration (14-month average) and discretionary demand factors.

Warning: The Occupancy Trap

High occupancy doesn't automatically mean strong performance. A property at 98% occupancy with rents 15% below market is underperforming a comparable property at 94% occupancy charging market rents. Always evaluate occupancy alongside revenue per unit and NOI growth—the combination determines true operating success.

Occupancy Rate