In one sentence
The gap between potential rent and actual collected rent, capturing physical vacancy plus concessions, delinquency, and non-revenue units.
The longer version
Economic vacancy is broader than physical vacancy: it counts not just empty units but rent lost to concessions, delinquency, and model or employee units. It is the true drag on collected income.
Lenders use economic vacancy rather than physical vacancy to underwrite conservatively, because a fully occupied property can still collect well below its potential.
Common questions
- What is economic vacancy?
- The gap between potential rent and rent actually collected, capturing physical vacancy plus concessions, delinquency and non-revenue units.
- How is economic vacancy different from physical vacancy?
- Physical vacancy counts empty units. Economic vacancy also counts occupied units that are not paying full rent, so it is usually higher.
- Why do lenders focus on economic vacancy?
- Because collected income repays the loan. A full building with heavy concessions or delinquency can generate much less than its occupancy suggests.
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