In 2024, high supply spiked multi-family vacancy rates, but recent data points to a resounding market recovery slated for early 2025. But what exactly is driving this tectonic shift?
Vacancy rates can swing from one year to the next for a number of reasons: both external and internal. These are just a few of the most common catalysts:
- Market oversaturation from new developments
- Economic downturns
- Fluttering unemployment rates
- Population changes
- Rental rates that are set too high
Out of complacency, some property owners will “wait out” the volatility of 2024 and chalk these vacancy fluctuations up to factors out of their control–but the wiser group will take a more introspective approach.
Here’s what your vacancy rate says about the state of your multi-family property (or portfolio of properties).
What is a Good Vacancy Rate for Multi-Family Property?
In the multi-family rental industry, a vacancy rate of around 7% is typically seen as “good.” However, most property owners aim to keep their rates within the 5-10% range. Rates within this range typically indicate that the market is healthy, that rent prices are fair, and that the property owner has found a delicate balance between demand and supply.
If the rate dips too low (2-4%), it may initially seem positive, but this range offers less flexibility for rent adjustments. On the other hand, if the vacancy rate climbs above 10%, it’s usually time to check in on the property’s marketing, rental terms, or competitive positioning.
High vacancy rates are a red flag that will catch the attention of any seasoned real estate investor–but they’re especially worrisome when they exceed the average vacancies of comparable properties in the same submarket/neighborhood.
| Vacancy Rate Range | Description | Performance Indicator | Considerations and Insights |
| 2% – 4% | Very Low Vacancy | Strong Demand, Excellent Occupancy | High occupancy may allow for rent increases but could limit tenant turnover flexibility. |
| 5% – 7% | Optimal Range | Balanced Demand and Supply | Reflects healthy tenant retention and steady demand; ideal for most properties. |
| 8% – 10% | Moderate Vacancy | Acceptable but Monitor Closely | May indicate a slightly soft market; assess marketing and leasing strategies. |
| 11% – 15% | High Vacancy | Below Optimal Performance | Potential issues with tenant retention or market demand; consider adjusting rental terms or incentives. |
| Above 15% | Very High Vacancy | Poor Performance, Needs Attention | Indicates potential structural issues, high competition, or pricing misalignment; review management, marketing, and pricing and strategy. |
How to Calculate Vacancy Rate for Multi-Family Property
The vacancy rate formula takes the number of vacant units and divides it by the total units in the multifamily property. This number is then multiplied by 100 to convert it into a percentage.
Note: This formula can be used regardless of the size of the multi-family property.
Formula: Vacancy Rate = (Vacant Units / Total Units) × 100
The final number will represent the average vacancy rate for the entire year. These averages are safe to operate off of when developing a vacancy-mitigation strategy.
| Step | Description | Example Calculation |
| #1: Identify Total Units | Determine the total number of rental units in the property. | Example: 100 units |
| #2: Count Vacant Units | Count the number of units currently unoccupied. | Example: 8 vacant units |
| #3: Apply Formula | Use the formula: (Vacant Units / Total Units) x 100 | (8 / 100) x 100 = 8% |
| #4: Interpret Result | The result represents the vacancy rate as a percentage. | Example: 8% vacancy rate |
Sample Calculation of Vacancy Rate for Different Property Sizes
The number of units in a multi-family property significantly impacts its vacancy rate. Smaller properties often face higher vacancy rates simply because of the larger proportional effect of losing even one tenant.
The table below illustrates some sample vacancy rates across various property sizes. Notice, for example, how a 500-unit property can sustain more than 35 vacancies and still remain within the ideal vacancy rate range.
| Property Size | Vacant Units | Vacancy Rate Calculation | Result |
| 20 Units | 1 | (Vacant Units / Total Units) x 100 | 5% |
| 30 Units | 3 | (Vacant Units / Total Units) x 100 | 10% |
| 50 Units | 6 | (Vacant Units / Total Units) x 100 | 12% |
| 100 Units | 8 | (Vacant Units / Total Units) x 100 | 8% |
| 150 Units | 15 | (Vacant Units / Total Units) x 100 | 10% |
| 200 Units | 22 | (Vacant Units / Total Units) x 100 | 11% |
| 500 Units | 35 | (Vacant Units / Total Units) x 100 | 7% |
Note: The formula for calculating the vacancy rate is: Vacancy Rate = (Vacant Units / Total Units) × 100
Factors That Influence Rental Vacancy Rate
Vacancy rates for rental properties vary from one location to another. They are also heavily influenced by the current real estate market. Before consulting a real estate agent about your vacancy rate, educate yourself on the factors that will impact the average vacancy rate of your rental property portfolio.
Property Size and Type
We’ve talked about keeping the ideal vacancy rate between 5% and 10% to maximize rental income and maintain property value. However, property owners who have smaller multi-family units may struggle with higher rental vacancy rates.
For instance, a five-unit multifamily property can lose a single tenant and jump to a 20% vacancy rate. Remember this concept as you calculate the vacancy rate and compare your property to others.
Location and Neighborhood Demand
Part of succeeding in the rental market is understanding neighborhood trends. Properties in high-demand urban areas tend to have lower vacancy rates than those in rural areas with little demand.
Economic Conditions
Economic conditions will vary by location or property size. Sometimes, the local unemployment rate, economic instability, recessions, and even inflation will make finding quality tenants especially difficult in particular submarkets.
Seasonality and Timing
Experienced real estate agents understand the impact of seasonality on vacancy rates. For instance, moving activity is slower in the winter. On the flip side, multi-family property owners tend to notice fewer unoccupied units in the spring and summer.
Some areas of the country notice property occupancy close to 100% during prime season and less than 50% in the off-season. This is common in areas like Florida that serve as hubs for snowbirds flocking to warmer weather.
Rental Pricing Strategy
The classic supply and demand principle also plays into rental vacancy and potential rental income. Properties with rental prices above market rates experience higher vacancy rates.
Rental prices should match local averages and help potential tenants believe they are paying fair market rent whenever possible.
Property Conditions and Tenant Relations
Properties that aren’t well maintained are more likely to experience higher tenant turnover. While amenities like laundry, fitness centers, and dog parks make rental properties more desirable, thereby lowering the vacancy rate, poor management will have a proportionately negative impact on vacancy rates.
A strong property manager can do their part to mitigate unit vacancies by proactively communicating about lease renewals.
Common Strategies to Lower Multi-Family Property Vacancy Rates
Complacent property managers will shrug off inclining vacancies as a byproduct of a “bad economy.” Great property managers and owners will actively look for opportunities to improve rental vacancy rates and stay within that 5% to 10% range.
Here are a few of the most common strategies for lowering property vacancy rates.
- Use property management software: Extend your marketing reach by showcasing vacant units on websites like Zillow, Aparments.com, and even Facebook Marketplace.
- Review leasing terms: Flexible leasing terms, such as 6-month or month-to-month leases, will attract a new type of customer.
- Stay aware of pricing fluctuations. Competitive and fair pricing that matches the current market conditions is a must for all multi-family property owners.
- Consider tenant retention programs: Make tenants’ lives easier with online payment portals, prompt maintenance services, and quick email/phone responses.
- Offer smart incentives for new tenants: Waive application fees, offer free parking for a month, or instate a first-month discount to attract new tenants and lower vacancy rates.
Ancillary Income Potential from Parking Spaces and Storage Units
While there are strategies to curb high vacancy rates, tenants won’t start showing up at your door overnight. In the meantime, turning to ancillary income sources—like paid parking spaces and storage units for rent—can be a smart way to boost revenue.
In urban areas, monthly parking spots are often hard to find. If 20% of your spaces are sitting empty, you’re leaving money on the table. The same idea applies to storage lockers and other rentable spaces.
| Service Type | Number of Units/Spaces | Monthly Rate per Unit/Space | Occupancy Rate | Monthly Income Potential | Annual Income Potential |
| On-Site Storage Lockers | 10 units | $60 | 80% | $480 | $5,760 |
| 50 units | $60 | 85% | $2,550 | $30,600 | |
| Bike/Sports Equipment Storage | 10 spaces | $40 | 75% | $300 | $3,600 |
| 50 spaces | $40 | 85% | $1,700 | $20,400 | |
| Reserved/Covered Parking | 10 spaces | $120 | 70% | $840 | $10,080 |
| 50 spaces | $120 | 85% | $5,100 | $61,200 | |
| EV Charging Stations | 10 stations | $140 | 75% | $1,050 | $12,600 |
| 50 stations | $140 | 85% | $5,950 | $71,400 |
Note: The rates used reflect updated 2024 averages, with storage locker rates at approximately $60 per unit, parking rates at $120 per space, and EV charging at $140 per station
Final Thoughts
Now that you better understand how to calculate multi-family property vacancy rates, you can determine how your properties are positioned in the market. If your portfolio includes multi-family buildings with high vacancy rates, you will want to look at establishing new ancillary income channels.
With the help of Neighbor, the leading peer-to-peer parking platform, you can start generating ancillary revenue from non-residents in need of affordable parking and self-storage options. Establishing a new property management revenue stream is as simple as listing your vacant parking spaces and on-site self-storage units on Neighbor’s platform.
Grow your ancillary income with no added costs. Become a Neighbor partner here.
