What is the difference between vacancy and real vacancy - and why do you need to look at both?
Leasing is (or really SHOULD be) a top priority for real estate companies right now. Here we delve into the difference between vacancy and actual vacancy, and what conclusions you can draw from these key figures.
What is vacancy?
To clarify real vacancy, we start with a term many people are comfortable with: vacancy. A vacancy, or a vacant property, is an unrented property in the portfolio that for some reason does not have a tenant at the moment.
The reason could be that there is some kind of maintenance going on, such as a refurbishment or renovation, which prevents the property from being rented out - or that it is just a hard-to-let property that currently has no interested parties. “Vacancy” thus refers to both blocked objects AND those objects that could be rented out, but are not at the moment.
What is real vacancy?
Real vacancies are unrented properties that do not have an escrow line, so they are rentable. In other words, there is no ongoing renovation or similar that prevents a tenant from moving in. Real vacancy refers to objects that "should" be rented out, or at least that it is possible to rent out the object right now.
The metric provides an in-depth understanding of how well your rental properties are being utilized, with a particular focus on properties that are actually available for rent. It can be useful for landlords, managers and executives alike.
Why should you distinguish between vacancy and actual vacancy in your analysis?
It is perfectly natural for real estate companies to have some vacancy in their portfolio due to maintenance, but if a high percentage of rentable objects are vacant (high real vacancy rate in other words), it is a sign that something is not working properly in the rental process.
High real vacancy rates can have a negative impact on your revenue stream and profitability. If you find that a large proportion of your vacant properties are truly vacant, you should see this as a warning flag and signal the need to take action to increase rentals.
What measures can be taken to deal with real vacancy?
A few suggestions:
Intensified marketing
Adjusted target group
Adjustments to rental prices
Improvements to the objects to make them more attractive to potential tenants.
On the other hand, if real vacancy has a low value, it indicates that a significant percentage of your rentable properties are rented, which is positive for your revenue and business performance. While this is positive, it may still be wise to continue to monitor this KPI on a regular basis to ensure that you continue to optimize the use of your available rental properties and minimize real vacancy.
Finally, the KPI provides an insight into how efficiently you are utilizing your portfolio of rentable properties and whether measures are needed to improve the occupancy rate and thus increase the revenue stream. It is a valuable indicator to effectively manage your real estate portfolio and your real estate business.
In Homepal, real vacancy is defined as "non-rented of rentable". Thus, only rental properties that are available are included - vacant, blocked or similar are excluded from this value.
How is the real vacancy rate calculated?
Number of rental objects* without an active contract with a tenant / Total number of rental objects = %.
* Includes only rental objects that are not marked as vacant, blocked or similar.
Why is it important to monitor real vacancy?
There are several good reasons why you should follow the key figure:
Better revenue planning: By monitoring this KPI, you can better plan your revenue stream as it provides an accurate indication of how many of your available rental properties are actually generating revenue. It helps you establish realistic budgets and financial forecasts.
Efficient resource allocation: By identifying the level of properties that are truly vacant (i.e. not blocked or vacant), you can properly allocate your resources and focus on the truly available properties.
Customer satisfaction: Keeping track of the real vacancy rate will help you ensure that the properties you actually offer are in good condition and ready to rent. This can improve tenant satisfaction and reduce the risk of negative feedback from tenants.
Strategic portfolio management: Vacancy information is valuable for making decisions about the composition and strategy of your property portfolio. It can help you determine if you should invest more in marketing or improvements to fill vacant properties or if it is time to re-evaluate your real estate investments.
Early detection of problems: If the real vacancy rate suddenly increases, it could be an indication of problems, such as decreased demand in your real estate market. Being aware of this early on allows you to take action and adapt your strategy in accordance with market changes.
In summary, the KPI is a key indicator for monitoring and optimizing the revenue stream and profitability of property management. It allows you to make informed decisions, manage your property portfolio efficiently and adapt to changes in the real estate market.
