Percent Real Estate Vacancy – What Does it Mean?

While it’s likely clear that percent real estate vacancy refers to the amount of property that isn’t occupied as compared to the entire market size, it probably doesn’t mean anything to you. That’s like a doctor noting your blood gas level is 0.05% – it’s not usable information. That’s why you’ll find a new graphic in the Market Advisor, our quarterly annual report, that better communicates what these vacancy percentages mean in the real world.

Over the last several quarters, our reports have shown vacancy rates bouncing around a bit between 9 and 10%. But in the real estate world, in our market, there isn’t a significant difference between an 8.25% and a 9.50% vacancy. With almost 80,000,000 sq. ft. of market size, that’s 1,000,000 sq. ft. of space that is or isn’t available in the market. But that needs to be put into perspective. The market would have about 6,500,000 sq. ft. of available space from which to select your next warehouse, surely meaning a good selection from which to choose.

You may also notice that the vacancy wheel is not linear. We have included five one-percent segments from center balanced market to lowest vacancy, but there are seven segments for high vacancy. Why the imbalance? When we have an active market with low vacancy and high rates, investment dollars tend to flow into the market and lots of new warehousing breaks ground to fill the space gap. This is fine assuming demand continues. But real estate is cyclical and overbuilt situations arise when demand slows. When that happens, it’s quicker to build a warehouse than it is to fill an empty warehouse with slow demand. And with a long construction lead time – eight to nine months to build a new warehouse – developers generally do not stop construction projects even though demands is waning, which means the vacancy can spike quite high until some inventory is absorbed.

It’s our hope that this new addition to the Market Advisor provides usable information. Download our free quarterly report on our Resources page now.

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