Occupancy rates are a measure of how many people are living in a building.
What is the difference between net and gross occupancy?
Net occupancy rates can be used to show how efficiently a building’s space is being utilized, while gross occupancy rates can be used to estimate what the building’s occupancy potential is.
- Net occupancy = number of rooms-nights occupied divided by the number of room-nights available in a given month (net temporary closures,etc ).
- Gross occupancy = number of room-nights occupied divided by the total number of room-nights in a given month (regardless of them being available for selling or not.)
What is average daily occupancy?
Average daily occupancy is a metric that measures the average number of guests staying in a hotel or other accommodation each day. It is calculated by dividing the total number of guest nights (the amount of nights all guests stayed in the building during a given period) by the total number of days in that period.
Is occupancy directly related to value?
Yes, occupancy is often directly related to the value of a building. Generally speaking, higher occupancy rates lead to higher property values, as there is greater demand for the space. On the other hand, if the occupancy rate of a building drops too low, investors and landlords may have difficulty making their desired returns on their investments and will be less likely to purchase the property.
What is a minimum occupancy rate for apartment buildings?
Minimum occupancy rates are often set by landlords and investors to ensure their buildings are profitable. The minimum occupancy rate for apartment buildings varies, but it is typically around 60%. It is important to keep an eye on the occupancy rate of a building since it can be a strong indicator of how successful the building and its management are.
How important are occupancy rates?
Occupancy rates are an important metric for property owners, investors and managers as they directly affect a building's profitability. High occupancy rates mean more revenue and lower vacancy costs while low occupancy rates can lead to financial losses due to vacancies, lost rent potential and increased operating costs. By tracking changes in occupancy rates over time, landlords and property managers can ensure they are optimally managing their properties and can take action to address any occupancy issues that may arise. Additionally, tracking occupancy rates can help landlords identify trends in the local market and make informed decisions about rent prices and property management strategies.
However, it is important to note that while occupancy rates are an essential metric for measuring property profitability, there are other factors to consider, such as tenant retention rates, rental income growth, and overall property value appreciation. By focusing on these broader indicators in addition to occupancy rates, owners, investors and property managers can achieve sustained long-term success in the rental market.
How to calculate occupancy rates
How to calculate occupancy rates
To calculate the occupancy rate of a building, you first need to determine the total number of units or spaces in the building. For example, a residential building with 100 units would have a total occupancy potential of 100. Next, you need to count how many of those units are currently occupied. If 60 of the 100 units in the example building were occupied, then its occupancy rate would be 60%.
- The formula for occupancy: Occupancy % = (Number of Occupied Units/ Total Number of Units) x 100
- The formula for average daily occupancy: Average Daily Occupancy = Total Guest Nights / Total Days
Measuring and tracking occupancy
In order to measure and track occupancy rates, landlords should have systems in place to accurately track the number of units being rented out as well as their current availability. This information should be updated regularly in order to maintain accurate records. Additionally, rental contracts should include specific provisions about occupant occupancy limits, such as number of occupants per room or unit.
You may want to track your occupancy rate daily, weekly, or even monthly, depending on the size of your building. To track occupancy rates, you can use a variety of methods such as manual counts, surveys, or automated check-in systems.
Balancing occupancy rates and revenue
Below is a concept overview of how to balance occupancy rates and revenue:
With the example of 20 units at 50% occupancy, would halving to 10 units result in 100% occupancy? The answer is no, as with flexible stay reservations it becomes a bit like Tetris. You can aim to merge reservations, but they will intersect across some days.
Here is a simplified scenario where availability on marketing channels such as Airbnb and Booking.com is set to only allow reservations over the weekend.
The occupancy would remain the same at 40%, regardless of whether you have one or four apartments (assuming there is demand).
The below example is a bit more realistic, where the reservations only partially intersect. As you can see from the reservation blocks, they will conflict a lot if you're trying to merge them. So, you'll only be able to merge a couple and it you won't majorly improve your occupancy rates.
For the final example, there are random bookings filling up the calendar with two nights minimum length of stay. This example doesn’t include reservations too much longer in duration, so it's a simplified scenario.
With some smart allocation, you can reduce the number of apartments from ten to five. This shifts the overall occupancy rate from 58% to 73%, an improvement of 15% with half of the units required.
However, this results in a loss of 65 booked nights and associated revenue.
This is just an illustration, with varying methods to merge reservations in more or less optimal results.
This also depends on the reservations that come in first. A shorter reservation might be booked first, blocking a period where someone might look to book a longer reservation. This will be unknown if only a minimal number of units are available, which is why it’s important to allocate the optimal number of apartments based on demand.
It also highlights the importance of having marketing and pricing technology that optimizes for both occupancy and revenue.
Troubleshooting low occupancy rates
Reasons for low occupancy rates for long term lease buildings
If the occupancy rate of your building is lower than expected, there may be several reasons why. Reasons for low occupancy rates for long term lease buildings can vary depending on the specific location, market conditions, and property management strategies. However, some common factors that can contribute to low occupancy rates include:
Building is in a lease-up (stabilization) phase after recently finished construction
During the lease-up, or stabilization, phase of a building, it is not uncommon for occupancy rates to be lower than expected. This is due to several factors that are inherent to the nature of new construction and leasing. Firstly, during the stabilization phase, the building may not be fully complete, and potential tenants may be hesitant to sign a lease until they can see the finished product. Additionally, the lease-up phase can also coincide with a slow market, economic recession, or other external factors that may weigh on potential tenants' minds.
Furthermore, property management strategies during the stabilization phase can also impact occupancy rates. For example, if management has set rents too high initially, this could dissuade potential tenants from signing a lease. Alternatively, if management is not adequately marketing the units, this could lead to a lack of awareness and low leasing demand.
High rent prices that exceed the local market demand
High rent prices that exceed the local market demand can significantly impact a building's occupancy rates. When rent prices exceed what tenants are willing or able to pay, it can lead to a lack of interest and decreased demand for properties, resulting in a lower occupancy rate.
There are several factors that contribute to high rent prices, including a shortage of available rental properties, increased demand from tenants, and the rising cost of property maintenance and care. In some cases, property owners may try to compensate for these costs by increasing their rental prices to cover expenses, but this can often backfire and lead to a decrease in occupancy rates.
When a building's rental prices exceed what tenants are willing to pay, it can lead to increased competition between properties. Potential tenants will compare rental prices between various buildings, and if a property is too expensive, they are unlikely to choose it over other more affordable options. This decline in demand can lead to a decrease in occupancy rates, which can be detrimental to a building's profitability.
Additionally, high rent prices that exceed local market demand can lead to decreased tenant retention rates. When rental prices are too high, tenants may choose to move elsewhere when their lease is up, which can further increase vacancy rates and negatively impact a building's occupancy rate.
It is crucial for landlords and property managers to keep rent prices in line with local market demand to maintain optimal occupancy rates. Properties with lower rental rates that are in line with local market trends and competitive with other buildings are more likely to attract tenants and maintain high occupancy rates over time.
In conclusion, high rent prices that exceed local market demand can have a significant impact on a building's occupancy rates. It is vital for landlords and property managers to consider the local rental market when setting rental prices to maintain tenant demand and occupancy rates for sustained long-term success in the rental market.
Lack of renter demand in the local market
Lack of renter demand in the local market can be a major obstacle for buildings trying to maintain high occupancy rates. When there is a decrease in the number of people looking for rental properties in a particular area, it can make it difficult for landlords and property managers to maintain high occupancy rates.
A lack of renter demand can occur for several reasons, including changes in the local job market, a stagnant economy, or a decrease in population growth. Additionally, if competing buildings in the area are offering better amenities, more affordable pricing, or more flexible leasing options, it can negatively impact a building's occupancy rates.
When there is a lack of renter demand in the local market, it can lead to increased competition between buildings. Property owners and managers will have to work harder to attract tenants, often resorting to offering incentives such as lower rents, reduced security deposits or prepaid rent. This can be detrimental to a building's profitability, as offering such incentives can reduce profit margins.
Furthermore, a lack of demand can also lead to an increase in tenant turnover, as renters may be more inclined to shop around for a better deal, leading to higher vacancy rates. As a result, landlords and property managers may need to invest more resources into marketing and advertising to attract new tenants and maintain their occupancy rates.
Poor maintenance and outdated amenities
Poor maintenance and outdated amenities can significantly affect a building's occupancy rates. In today's highly competitive rental market, tenants have high expectations of the amenities a property offers, and they are more likely to choose buildings that meet their standards. A poorly maintained property or outdated amenities can quickly make a building unattractive to potential tenants, leading to decreased occupancy rates.
Tenants expect their rental properties to be in good condition, with any issues promptly addressed by the landlord or property manager. Failure to provide adequate property maintenance can lead to negative reviews and a poor reputation in the local market, making it challenging to attract new tenants. Even minor issues such as a leaky faucet or peeling paint can give the impression that a landlord is uninvolved or indifferent to their tenant's needs.
Similarly, outdated amenities such as old appliances, carpeting, or worn finishes can make a property less appealing. Tenants prefer rental properties with modern amenities such as stainless steel appliances, granite countertops, and updated fixtures. If a building's amenities are outdated or in poor condition, it can deter potential tenants, leading to lower occupancy rates.
Furthermore, poorly maintained properties and outdated amenities can lead to higher tenant turnover. Tenants may become dissatisfied with the property's conditions, leading them to leave once their lease is up. A high tenant turnover rate can lead to increased expenses in finding new tenants and refurbishing the property.
Inadequate marketing and advertisement effort
Inadequate marketing and advertisement effort can have a significant impact on a building's occupancy rates. Without effective marketing strategies to promote a property, it can be challenging for landlords and property managers to attract new tenants and maintain high occupancy rates.
Marketing and advertising efforts are crucial in the rental market, especially in areas with high competition. Effective marketing can help landlords and property managers differentiate their property from the competition and attract potential tenants. Without proper marketing and advertising, a building may go unnoticed by potential renters, leading to fewer inquiries and lower occupancy rates.
Negative reviews or word-of-mouth reputation
Negative reviews and word-of-mouth reputation can have a severe impact on building occupancy rates. In today's digital age, where online reviews are prevalent, a negative review can significantly affect how potential tenants perceive a property. Word-of-mouth reputation is equally important, as tenants often rely on recommendations from friends and family before making rental decisions.
Negative reviews can deter potential tenants from considering a property, leading to decreased demand and lower occupancy rates. Even a single negative review can be enough to discourage a prospective tenant from renting a property, especially if it relates to essential aspects such as maintenance, amenities, or landlord responsiveness. Moreover, in today's interconnected world, a negative review can spread quickly, potentially reaching a vast audience of potential tenants.
Word-of-mouth reputation is equally influential in shaping tenant perceptions of a property. Tenants are more likely to rent a property with positive recommendations from friends and family. Conversely, negative word-of-mouth can quickly spread, leading to decreased demand and lower occupancy rates.
It's essential to note that negative reviews and word-of-mouth reputation are challenging to overcome. Property owners and managers must proactively address any issues that lead to negative reviews and take steps to improve the building's reputation. This can include addressing maintenance issues promptly, updating outdated amenities, and ensuring a responsive and attentive landlord or property management team.
Reasons for low occupancy rates for short term rental apartments
Short-term rental apartments are a popular choice for many travelers, but low occupancy rates can be a significant problem for landlords and property managers. There are several reasons why occupancy rates may be low, and it's essential to identify and address these issues to maximize rental income.
One significant factor that can contribute to low occupancy rates is an unresponsive or indifferent landlord. Short-term rental guests often have specific needs and may require assistance beforem during or after their stay. If a landlord is uninvolved or unresponsive to these needs, it can lead to dissatisfied guests who may not return or leave negative reviews. In today's interconnected world, a negative review can spread quickly, potentially reaching a vast audience of potential guests.
Another factor that can contribute to low occupancy rates is outdated or poorly maintained amenities. Short-term rental guests expect modern amenities such as stainless steel appliances, granite countertops, and updated fixtures. If a property's amenities are outdated or in poor condition, it can deter potential guests and lead to lower occupancy rates. Additionally, poorly maintained properties can lead to higher guest turnover, as dissatisfied guests may not return.
Inadequate marketing and advertisement efforts can also contribute to low occupancy rates for short-term rental apartments. Without effective marketing strategies to promote a property, it can be challenging for landlords and property managers to attract new guests and maintain high occupancy rates. Marketing and advertising efforts are crucial in the rental market, especially in areas with high competition. Effective marketing can help landlords and property managers differentiate their property from the competition and attract potential guests.
In conclusion, low occupancy rates for short-term rental apartments can be caused by several factors, including an unresponsive landlord, outdated amenities, inadequate marketing, negative reviews, and poor word-of-mouth reputation. By identifying these issues and addressing them proactively, landlords and property managers can increase occupancy rates and maximize rental income.
How to increase occupancy rates
Finding and attracting long term tenants
One of the most effective ways to attract long-term tenants is to offer lease incentives. Landlords can offer discounted or waived application fees, one month of free rent, or other incentives to potential tenants who sign longer leases. These incentives can be attractive to tenants who are looking for a stable and affordable living situation.
It is also important to maintain the building and its amenities to attract long-term tenants. Similar to short-term rentals, long-term tenants expect modern amenities, cleanliness, and responsive maintenance staff. An updated gym or pool, efficient laundry facilities, and pet-friendly policies can make a property more appealing to a variety of potential tenants, including families and pet owners.
Advertising long-term rentals on social media platforms, such as Facebook or Instagram, can also be an effective tool for attracting tenants. Landlords can create a social media campaign with photos of the building's amenities and apartments, testimonials from current tenants, and information on rental rates and lease terms.
In addition, offering flexible lease terms can be an attractive option for potential long-term tenants. Some renters may be hesitant to commit to a year-long lease, especially if they are new to the area or unsure of their future plans. Offering six-month or month-to-month leases can draw in more long-term tenants, as it gives them the flexibility to move out if their situation changes.
Finally, landlords and property managers can leverage positive reviews and word-of-mouth recommendations from current and past tenants to attract new tenants. Encouraging tenants to leave reviews and offering incentives for referrals can create a positive cycle of tenant satisfaction and high occupancy rates.
In conclusion, attracting long-term tenants is crucial to increasing occupancy rates in buildings. Offering lease incentives, maintaining modern and clean amenities, advertising on social media, offering flexible lease terms, and leveraging positive reviews and referrals are all effective strategies for attracting and retaining long-term tenants. By focusing on these areas, landlords and property managers can create a thriving and profitable rental business.
Increasing occupancy and revenue during lease-up (stablization)
To address low occupancy rates during the stabilization phase, property management must adopt a proactive approach that includes diligent marketing, flexible leasing terms, and competitive pricing. Providing incentives such as reduced rent or waived fees can also encourage potential tenants to sign a lease. By understanding the unique challenges of the stabilization phase and employing the right strategies, property managers can successfully navigate this period and achieve optimal occupancy rates in the long run.
Another way is to strategically reposition a number of the vacant apartments to short term rentals. This type of rental arrangement, typically ranging from a few days to a few months, allows for greater flexibility and can attract a wider range of renters, including business professionals and tourists. By leveraging the right marketing channels and providing high-quality amenities and services, owners and property managers can tap into the growing demand for short-term rentals and set themselves up for long-term success. Combining short and long term rentals provides high-yielding income from what would otherwise be vacant apartments.