Definition of Economic Occupancy for Apartment Complexes

Most of the time, an apartment complex is seen as a set of homes. This is certainly true, but apartment complexes also are businesses. Management at apartment complexes charge for use of the facility, as well as for damages and late rent, and the apartment complex will shut down if the management is not able to bring in enough revenue to operate the facility. Management thus keeps a close eye on how many renters they have on their property in order to determine the feasibility of the business. They also watch economic occupancy. The sections below explain what economic occupancy is and why it is so important to apartment complexes.

Definition

Economic occupancy is the amount of money that is collected from renters compared to the amount of money that actually could be collected.

Calculation

Economic occupancy is calculated by dividing the rent collected from tenants by the amount of rent that is scheduled for collection. For example, if a property has 10 tenants who each are supposed to pay $800 per month, but only eight of the 10 tenants pay their rent, then the economic occupancy would be $6,400/$8,000, or 80 percent. Ideally, the economic occupancy percentage should be close to or match the physical occupancy percentage.

Use

Economic occupancy is used to figure out if an apartment complex has issues with turnover and rent collection. Low economic occupancy signals that these issues are present, either because the management at the complex is poor or because the tenants cannot or will not pay rent.

Assessment Value

Economic occupancy is a better means of assessing an apartment complex's success than physical occupancy is. This is because an apartment complex can be completely full in terms of tenant numbers (100 percent physical occupancy), yet still be losing revenue because the tenants are not paying rent (less than 100 percent economic occupancy). This is why realtors will look at economic occupancy when determining the value of the complex.

Consistency

Economic occupancy has to be calculated the same way every time or a misconception about the property's value and management may develop. For instance, if economic occupancy is calculated weekly, a complex might show high economic occupancy the last week of the month and low occupancy the first week of the month, simply because most outstanding rents have been worked out by the last week of the month and are usually unresolved during the first week. If management suddenly switches to calculating economic occupancy by the month, the variances that appeared in the economic occupancy percentage from week to week would be eliminated. Such a sudden elimination of economic occupancy fluctuation could be taken as a resolution of complex problems, when in reality the only thing that might have changed was the frequency of calculation.