Economic occupancy reflects the income-generating capacity of a property relative to its potential. It is determined by dividing the total revenue generated by a property by its potential revenue, assuming full physical occupancy at market rates. For instance, if a building could potentially generate $100,000 in revenue at 100% physical occupancy with current market rents, but currently generates $80,000, the economic occupancy is 80%. This figure provides insight into the property’s financial performance, taking into account both physical vacancy and rent collection.
This metric offers several benefits to property owners and investors. It provides a more nuanced view of performance than physical occupancy alone, revealing the impact of factors like rent concessions, uncollected rent, and below-market lease rates. Understanding this indicator can inform strategies for optimizing rental rates, managing tenant relationships, and improving overall profitability. Historically, tracking this has allowed for benchmarking property performance against similar assets and evaluating the effectiveness of management decisions over time, providing valuable context for strategic planning and investment decisions.