Occupancy Ratio
The occupancy ratio is the ratio of rented or used space to the total amount of space available. An occupancy ratio or occupancy rate is used by analysts when hospitals, senior housing, hotels, bed-and-breakfasts, or other types of rental units are discussed to determine the percentage of occupancy for those establishments.
For example, an 80 unit commercial office building currently has 60 units occupied. Therefore, the occupancy ratio is 60/80 or 75%. Similarly, in an apartment building with 40 units out of which 36 are occupied, the occupancy rate is 36/40 or 90%. The vacancy rate or vacancy ratio is the number of units still available in those buildings, or the opposing number, 40/80, and 4/40 in the examples above.
Occupancy Rates for Real Estate Investors
Occupancy rates or the occupancy ratio are important for real estate investors to indicate how profitable the investment would be for them. A residential real estate investor looking to invest in a rental property with multiple units at its disposal is interested in the occupancy rate. They could look at other rental properties in the area or at that rental property if it was used before for that purpose as it will tell them what cash flow he/she can expect from the investment.
A rental property that only has a 20% occupancy ratio will either require big financial investments or may experience a low occupancy rate because of external factors that can not be changed by one investor. A rental property like this may require more costs from the investor than it might bring back in profit. Additional time might be spent on finding tenants, and there’s always the risk that they might be unable to fill all the units available.
Property taxes and maintenance costs will continue to come regardless of occupancy ratio or vacancy rates.
Occupancy Ratio for the Real Estate Market
Those residential or commercial developments like malls depend on the occupancy ratio when it comes to the price of the property and the value for which they sell. If you take two malls where one has an occupancy rate of 90%, and the other falls short at 35%, the mall with a 90% occupancy rate will sell for a higher price than a low occupancy rate. The low occupancy ratio can indicate something wrong with the property, like its location, its amenities, its flow of customers or rentals, or its management. All these factors have to be considered by real estate developers as it will influence their cash flow once they purchase the property.
Popular Real Estate Terms
Small furnace placed between the studs of a wall. It is typically electric, but in the past more frequently was gas. ...
One who agrees to pay the debts of another in the event that the debtor does not pay. The creditor can demand payment from the surety as soon as the debt becomes due. Although a surety ...
Protection over and above that of an insurance policy or warranty. ...
Day the attachment of property under a judicial order becomes effective. ...
Unregistered stock or bond that pays the holder dividends (if stock) or interest (if bonds) as well as the selling price when sold (if stock) or principal (if bonds are held to maturity). ...
A clearly stated notice that an owner or operator will not assume responsibility for an inherent risk. For example, at a parking garage, a large notice of nonresponsability clearly states ...
Material installed at the roof's edge for support. ...
Appreciation, or property appreciation in real estate is the increase in the value of a property or asset over time. This increase in value can be due to a number of factors; inflation, ...
Under law, a warranty in effect even if not expressly stated. It provides that real property sold is warranted to be appropriate for sale and is in proper condition even if not stated, ...
Comments for Occupancy Ratio
I want to get topic discussion on environmental planning
Aug 19, 2021 09:49:12Hey Abdul! Thank you for reaching out to us. Personally, as an individual highly interested in sustainability and protecting the environment, I appreciate your suggestion. So much so that we will make sure to cover this subject in a future blog that you will find in the blog section of our site. Feel free to sign up for the blog's newsletter, and we will try to cover the subject as soon as possible. There, you will also find other articles related to the environment to sustainability from various perspectives. Stay tuned!
Aug 23, 2021 11:40:45Have a question or comment?
We're here to help.