Multifamily Property Vacancies: What They Really Cost You

Every moment a unit sits vacant, it impacts your bottom line. With approximately 800,000 units under construction nationwide, nearly double the pipeline of a decade ago, property managers and owners face increasing pressure to minimize vacancies and maximize returns. Elevated supply has created a competitive leasing environment, making strategic property management more essential than ever.

Understanding the true cost of vacancies is critical to maintaining profitability, preserving asset value, and ensuring long-term success. Vacancies not only disrupt cash flow but can also jeopardize property valuations if not addressed proactively.

In this blog, we’ll explore:

• What multifamily vacancies are and how to measure them.
• The key market forces driving vacancy rates.
• Strategies to evaluate and minimize vacancies effectively.

What Is a Multifamily Property Vacancy?

A multifamily property vacancy represents more than just an empty unit, it signifies a break in rental income that affects overall property performance. This break in occupancy can disrupt cash flow and long-term performance.

Three key metrics are essential for tracking vacancy impacts:

• Physical Vacancy Rate: The percentage of units not generating income. For example, a 100-unit property with 5 empty units has a 5% physical vacancy rate.
• Economic Vacancy Rate: This comprehensive measure includes lost income from both vacant units and concessions on occupied ones, like offering a free month’s rent.
• Market Average Vacancy Rate: Benchmarking your property’s vacancy rate against local competitors helps identify operational gaps or untapped opportunities.

Understanding these metrics allows property managers to make data-driven decisions about operations, marketing, and pricing.

Market Forces Driving Vacancy Rates

Vacancy rates are influenced by multiple factors, from economic indicators to location-specific trends. Proactively monitoring these drivers can help property managers stay ahead.

Economic Indicators

Local economic health often dictates vacancy trends. Strong job markets lead to lower vacancies, while wage growth enables tenants to absorb rent increases. Additionally, interest rates shape the rental market by influencing homeownership decisions, development activity, and property improvement financing.

Location & Demographics

Today’s renters evaluate locations through evolving priorities. While traditional factors like school quality and safety remain important, amenities and lifestyle considerations—particularly for remote workers—are now critical. Demographics also play a role: local population shifts, income levels, and household formation trends directly affect rental demand.

Seasonal Trends

Every market has its rhythm. University areas see turnover align with academic calendars, while tourist destinations face unique patterns. Understanding these cycles allows property managers to align marketing and pricing strategies with demand.

Common Causes of Property Vacancy

Vacancies arise from a variety of circumstances, but they typically fall into three main categories. Each scenario requires a tailored approach to effectively address the underlying issues and minimize turnover.

1. Lease Expirations & Non-renewals

When tenants decide not to renew their leases, it is often due to factors such as:

• Dissatisfaction with maintenance or service: Poor response times or inconsistent upkeep can drive tenants to seek alternatives.
• Rent increases outpacing their budget: Sudden or significant rent hikes may make a property unaffordable, pushing tenants to explore more cost-effective options.
• Life changes requiring different housing: Events like household growth, downsizing, or relocation for personal reasons often necessitate a move.

Proactively addressing these concerns by improving service quality or setting realistic renewal pricing can significantly enhance retention.

2. Early Departures

Unexpected move-outs often stem from unforeseen life circumstances, including:

• Job relocations: Tenants may need to move for new career opportunities or transfers.
• Financial hardships: Loss of income or changes in financial stability can force tenants to break leases.
• Major life events: Situations such as marriage, divorce, or health-related needs can lead to premature lease terminations.

Anticipating these situations is challenging, but offering flexible lease terms and maintaining open lines of communication can help mitigate their impact.

3. Contract Breaches

These more complex scenarios often result in extended vacancy periods and additional costs, including:

• Payment delinquency: Non-payment of rent can lead to evictions, which often leave properties vacant for extended periods.
• Serious lease violations: Issues like unauthorized occupants or illegal activities necessitate swift action but can disrupt occupancy.
• Property damage issues: Significant repairs required after tenant departures can delay the unit’s readiness for new occupants.

These situations require strong lease enforcement policies and prompt follow-up to minimize downtime. By understanding the three types of vacancy triggers, property managers can better implement targeted strategies to reduce tenant turnover.

How to Calculate & Evaluate Vacancy Rate

Property managers need accurate measurements to assess performance and make informed decisions. The formula for calculating vacancy rate provides a clear snapshot of property occupancy:

Vacancy Rate = (Number of Vacant Units ÷ Total Number of Units) × 100

While this calculation appears straightforward, proper application requires careful consideration of what constitutes a "vacant" unit. For example, a 200-unit property with 12 vacant units has a 6% vacancy rate. However, managers should track both physical vacancies and units under renovation or in pre-lease status to understand their true occupancy situation.

The True Cost of Rental Property Vacancy

Empty units cost more than just lost rent, they create a cascade of expenses that can significantly impact your property's financial health:

• Lost Rental Income: Each vacant unit represents significant revenue loss. A unit renting for $1,500 monthly equates to $18,000 annually if left unoccupied.
• Operating Expenses: Vacant units still incur costs like utilities, property taxes, insurance, and routine maintenance.
• Make-ready Costs: Preparing units for new tenants requires cleaning, repairs, and inspections, adding to vacancy expenses.
• Marketing and Advertising: Filling vacancies involves online listings, professional photography, and leasing agent compensation.
• Property Devaluation: Prolonged vacancies can lower net operating income, impacting property valuation and refinancing options.

How to Evaluate Your Property’s Vacancy Rate

Vacancy rates are more than just a percentage, they’re a pulse check on your property’s performance. These rates can vary widely depending on factors like property class, market conditions, and tenant demographics. Key considerations include:

• Local Market Conditions: High-demand markets often push vacancy rates lower, while oversupply can increase them.
• Property Age and Condition: Well-maintained properties typically attract tenants more effectively.
• Target Demographics: Different groups—families, students, professionals—have unique turnover patterns that influence vacancy rates.
• Competition Levels: Nearby properties with similar offerings impact pricing and concessions.
• Seasonal Trends: Planning around predictable fluctuations helps maintain steady occupancy.

A vacancy rate around 7% is often considered ideal, though most properties target something in the 5–10% range. Rates in this window indicate balanced pricing and healthy market conditions. According to our own data, the current national vacancy rate is 6.8% – check Apartment List Research Team’s monthly updates for insights specific to your metro.

If your vacancy rate exceeds 10%, it’s time to reassess. Is your marketing reaching the right audience? Are your terms competitive? Evaluating and adapting to these factors keeps your property attractive and occupancy steady.

Strategies to Minimize Vacancy

Reducing vacancies requires a strategic, multifaceted approach that includes three main components:

Tenant Retention

Satisfied tenants are less likely to leave. Focus on prompt maintenance, clear communication, and community-building initiatives. Flexible lease terms and competitive pricing also encourage long-term renewals.

Proactive Renewal Management

Establishing an earlier renewal status allows property managers to learn in advance when a unit will be vacated. This foresight enables them to begin advertising the unit immediately, generating interest and securing a new tenant before the property is vacant.

Efficient Turnover Processes

Minimize downtime by streamlining turnover tasks. Pre-schedule maintenance, use reliable contractors, and keep units move-in ready to reduce vacancy periods.

Targeted Marketing

Stand out in a competitive market with high-quality visuals, engaging listings, and data-driven advertising strategies. Leverage a smart leasing assistant like Lea Pro to engage leads and convert them more efficiently.

For more in-depth detailed strategies on reducing tenant turnover and maintaining high occupancy rates, visit our comprehensive blog on the topic: Tips to Minimize Tenant Turnover.

Overcoming Occupancy Obstacles with Apartment List

Managing vacancy rates effectively is essential to maximizing profitability in multifamily properties. Success hinges on understanding the causes of vacancies, tracking associated costs, and implementing strategies to minimize empty units. Consistently analyzing vacancy metrics and adapting your approach allows you to stay competitive and optimize property performance.

Property managers who excel in these areas protect their bottom line while building long-term value. Take the first step by assessing your current vacancy rates and costs, then apply the strategies outlined here to enhance your property’s app

Ready to take your property to the next level? Apartment List’s smart leasing solutions are designed to help you attract and retain quality residents. Contact us today to learn how we can support your success.