Occupancy Rate

What Is an Occupancy Rate?

An occupancy rate measures how much of a property's available capacity is in use at a given point in time. It is usually expressed as a percentage. If a 100-unit apartment building has 92 units rented, its occupancy rate is 92%. The term is most common in commercial and residential real estate, hotels, and short-term rentals, where the basic idea is the same: the share of total capacity that is actually being used.

How It Is Calculated

Occupancy rate = (Occupied units ÷ Total available units) × 100

The definitions of "occupied" and "available" vary by sector. A hotel may count rooms sold for a night, while an office landlord may count leased square footage. Some measures exclude units that are offline for renovation, so comparing figures from different sources requires checking how each one was defined.

For example, an office building with 50,000 square feet of rentable space and 42,500 square feet under lease has an occupancy rate of 85%. The remaining 15% is the vacancy rate, since the two figures together cover the full space.

Why It Matters to Investors

Occupancy is a basic indicator of demand. Higher occupancy generally means more of a property's potential income is being collected. Investors in a real estate investment trust often track occupancy trends in quarterly reports, and occupancy feeds into measures such as net operating income and the capitalization rate used to value properties.

Occupancy alone does not tell the full story. A property can be fully occupied at low rents, or partly occupied at high rents. Lease length, tenant quality, and local market conditions also matter. Because occupancy is a snapshot, a single reading can change quickly as leases start and end, so trends across several periods are generally more informative than one figure.