Two occupancies, two questions
Occupancy sounds like one number. It is two, and they answer different questions:
- Physical occupancy — occupied units ÷ total units. It asks “are the units full?” A 200-unit property with 190 occupied units is 95% physically occupied.
- Economic occupancy — rent collected ÷ gross potential rent. It asks “are the full units paying full rent?” — and it is almost always the lower number.
Brokers quote physical occupancy because it is the flattering one. Underwriters quote economic occupancy because it is the one that ties to cash.
How to calculate economic occupancy
Economic occupancy = rent collected ÷ gross potential rent, over the same period. Gross potential rent is every unit at market, fully occupied — the ceiling. Collected rent is what actually arrived. Take a 104-unit property:
Economic occupancy — 104 units, illustrative
Pull collected rent from the T-12 and gross potential rent from the rent roll, and make sure both cover the same window.
Why economic occupancy is always lower
A unit can be “occupied” without paying full market rent. Four things open the gap between physical and economic occupancy:
- Concessions. Free rent and waived fees — the tenant signed, but the rent isn’t fully collected.
- Loss to lease. In-place rents below market: occupied, paying, but under the gross-potential mark.
- Bad debt and delinquency. Billed but never collected — occupancy on paper, not in the bank.
- Non-revenue units. Model, employee, and down units counted as occupied while producing no rent.
A property that is 95% physically but 86% economically occupied is not 95% healthy with a rounding error. It is telling you nine points of your top line evaporate between the lease and the ledger — and that is before you ask why.
Which one you underwrite
Economic occupancy, always. Physical occupancy overstates income because it ignores everything between a signed lease and collected cash, and the offering memorandum will lead with the physical number for exactly that reason. The honest top line — effective gross income — is the economic one. This is the cross-check Nivora runs on upload: gross potential rent from the rent roll, collections from the T-12, and the economic occupancy that reconciles them — so the revenue in the model is the revenue the property actually earns.
Frequently asked questions
What is the difference between physical and economic occupancy?
Physical occupancy is the share of units that are occupied; economic occupancy is the share of potential rent the property actually collects. Physical asks “are the units full?”; economic asks “are the full units paying full rent?” Economic occupancy is almost always the lower — and more honest — number, because it nets out concessions, loss to lease, delinquency, and units that generate no revenue.
What is physical occupancy?
Physical occupancy = occupied units ÷ total units. A 200-unit property with 190 occupied units is 95% physically occupied. It is the headline number brokers quote, but it says nothing about whether those occupied units are paying, paying on time, or paying market rent.
What is economic occupancy?
Economic occupancy = rent actually collected ÷ gross potential rent (every unit at market, fully occupied). It measures how much of the theoretical top line survives after vacancy, concessions, loss to lease, bad debt, and non-revenue units. It is the occupancy figure that ties to the cash the property really produces.
How do you calculate economic occupancy?
Divide the rent actually collected over a period by the gross potential rent for that same period. For example, $1,430,000 collected against $1,668,000 of gross potential rent is 86% economic occupancy. Pull collected rent from the T-12 and gross potential rent from the rent roll, and make sure both cover the same window.
Why is economic occupancy lower than physical occupancy?
Because a unit can be “occupied” without paying full market rent. The gap comes from concessions (free rent), loss to lease (in-place rents below market), bad debt and delinquency (billed but not collected), and non-revenue units counted as occupied — model, employee, and down units. Each one lets physical occupancy stay high while economic occupancy slips.
Which occupancy should you underwrite to?
Economic occupancy. Physical occupancy overstates the income a property generates because it ignores everything between a signed lease and collected cash. A property that is 95% physically but 86% economically occupied is telling you the leases on paper are not turning into rent — underwrite the economic number and reconcile it against the T-12’s collections.
What is a good economic occupancy?
For a stabilized property it typically runs a handful of points below physical occupancy — often in the low-to-mid 90s when operations are healthy. A wide gap between physical and economic occupancy (high single digits or more) is a red flag: it points to heavy concessions, rising delinquency, or non-revenue units padding the physical number.
What is the difference between economic occupancy and economic vacancy?
They are complements: economic vacancy = 1 − economic occupancy. If a property collects 86% of its gross potential rent, its economic occupancy is 86% and its economic vacancy is 14% — the share of potential income lost to vacancy, concessions, loss to lease, and bad debt combined.
See it computed, not explained.
Every concept on this page is a number Nivora computes live — the real engine is running on a fictional 104-unit sample deal right now, no login required.