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Apartment Occupancy Rates
Regularly benchmarking the apartment occupancy rates of your apartment buildings against that of others in the area and country is important.
This helps you answer the question what is a good occupancy rate for an apartment building. Once you answer this question, you can determine how well your building is performing. As of August 2019, the national apartment vacancy rate (the opposite of the apartment occupancy rate) has averaged 4.7 percent for the past year, according to Multifamily Executive. That means the national apartment occupancy rate has been 95.3 percent. The low vacancy rates have led to the building of more apartment buildings. Fannie Mae believes this increased supply will bring the vacancy rates up closer to historical multifamily vacancy rates, most recently at around 6 percent. In 2019, a good occupancy rate against a national average is 96 percent or more.
Apartment occupancy rates do vary depending upon locality. For example, in May 2019, the Boston metropolitan area had the highest apartment occupancy rate in the country at 96.8 percent, which means that a good vacancy rate in Boston would be 97 percent or higher. If your occupancy rate is less than favorable or below market, you should examine factors such as attractiveness of your building and its amenities, marketing and local management to see where you can make improvements.
Calculate Occupancy Rate
Three types of occupancy rates are important: physical, economic and room occupancy. All can be calculated either by using spreadsheet software, such as Excel, or by using a calculator either online or on your phone.
Physical occupancy rate is the percentage of available rental space that is occupied with paying tenants. The occupancy rate formula for a particular month is number of units rented/ number available to be rented* 100., For example, you may have 50 units available for renting and 45 of them have paying tenants. To calculate physical occupancy rate, divide 45 by 50 for a total of .90. To express as a percentage multiply .90 by 100. The physical occupancy rate is 90 percent.
Some people confuse physical occupancy and leased occupancy. Here’s how to calculate the leased percentage: current number of units occupied + number of units with signed leases yet to move in) / total number of units * 100%. This measurement can be misleading. For example, you may have units occupied with people moving out next month but also signed leases for people moving in next month. This would result is your showing an occupancy of more than 100 percent.
An economic occupancy rate is the proportion of the gross potential rent that is collected—the money that is actually paid to your business. The gross potential rent (GPR) is the amount of rent that would be collected if you rented out all the apartments at the amount of rent shown in the rental contract. The economic occupancy rate formula is (GPR minus deductions)/GPR * 100. To calculate the economic occupancy apartment building owners first calculate the GPR by multiplying the number of apartments by the amount of rent that you could charge for each; for example, 70 apartments at $200 each would yield a GPR of $14,000. Then deduct out the rent not received because units are vacant or occupied by someone who receives rent for free, such as the building supervisor, and the amount of discounts given. Let’s say that one apartment is vacant and one is occupied by a supervisor. Another apartment is discounted $100. That means you would deduct $500 from the $14000 to get a total of $13500. Divide $13500 by $14000 and multiply that by 100. Your economic occupancy rate is 96.4 percent.
A room occupancy calculator is important to ensure that you comply with state laws regarding how many people can live in an apartment unit. The room occupancy formula is total square feet / number of tenants occupying the apartment. For example, New York law says that you must have at least 80 square feet per person. Suppose you have three people living in a two-room apartment. One room is 8×10 (80 square feet) and the other room is 12×14 (168 square feet). The total square footage is 248 (80 plus 168) Divide 248 by the number of tenants (3) to get 82.6. From this you determine that you have 82.6 square feet per person and are in compliance with the law.
How to Calculate the Occupancy Rate in Excel
Excel is a good tool for calculating occupancy rates each month and over time. One example of how to calculate the occupancy rate in excel is to create a spreadsheet with pages for each month. You then enter the monthly data along with the occupancy formula in excel. An example of one page of the spreadsheet is below. In this example, which calculates economic occupancy, the maximum rent is listed for each unit in column B and a formula in the bottom row of column B totals the maximum rent. The current rent is listed in column c, with a formula in the bottom row to total that. Then the economic occupancy formula, in this case, c9/b9, is in the bottom row of column D. You change the formatting of the cell in excel to have this expressed as a percentage.
|Unit Number||Maximum Rent||Current Rent||Economic Occupancy||Lease Expires|
Vacancy Rate Calculator
The vacancy rate is the opposite of the physical occupancy rate. The rental vacancy rate formula is 100 minus the occupancy rate. For example, if your occupancy rate is 95 percent, the vacancy rate is 100 minus 95 or 5 percent. To benchmark your performance, compare your vacancy rate to the rental vacancy rate by city and state. For an even more accurate benchmark, compare with the rental vacancy rate by zip code. Related to the vacancy rate is the availability rate, which is the ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.
Double Occupancy Rate
The double occupancy rate refers to those apartments that are occupied by two adults.
The double occupancy formula is the number of apartments occupied by two adults/number of occupied apartments and multiplied by 100 to obtain a percentage. This number will typically be smaller than the physical occupancy rate because some apartments will be occupied by only one person. Similarly, the multiple occupancy percentage formula is number of apartments occupied by more than one adult/number of occupied apartments and multiplied by 100 to obtain a percentage.
Related Calculations and Formulas
Several other calculations are important to understanding how your multifamily apartment building is performing compared with similar properties.
- The average daily rate is calculated using this formula: Revenues earned from units/Number of units rented. A rising average daily rate means that your investment is becoming more profitable.
- Revpar is revenue per available unit. The revpar formula is average daily rate * physical occupancy rate.
- Loss to lease refers to money lost through making incentives to perspective tenants, such as one month’s free rent with the signing of a one-year lease.