I reference this number in almost everything I write. Sub-3% in Laredo for industrial outdoor storage (IOS). Sub-2% in Sacramento for IOS. Here is why it matters and how to use it.
Vacancy rate is the percentage of available space in a market that is not currently leased for a given asset class. A 5% vacancy rate means 95% of the space is occupied.
Here is what it actually tells you:
Low vacancy = strong demand relative to supply. Tenants have few options. Landlords have pricing power. Rents tend to grow. New leases get signed.
High vacancy = the opposite. Tenants can negotiate. Landlords compete for them. Rents soften. Lease-up timelines stretch.
Two numbers matter: market vacancy and asset vacancy.
Market vacancy tells you whether the fundamentals are on your side. Asset vacancy tells you how this specific property is performing relative to the market.
A building that is 85% leased in a 5% vacancy market is underperforming. something is wrong with the asset or the management.
A building that is 85% leased in a 25% vacancy market is actually doing well. The market is weak but this asset is holding up.
Never look at one without the other.
What vacancy rate makes you nervous in the markets you invest in?
Wednesday Real Estate 101: Vacancy rate
