Vacancy Rate in Commercial Real Estate: A Crucial Indicator for Supply, Demand, and Strategic Investments

The vacancy rate is an indicator that measures the proportion of unoccupied space compared to the total existing space of a property or group of properties. Availability in the commercial real estate market is essential for evaluating supply and demand, determining prices, and fostering fair negotiations. This indicator also serves to analyze markets and real estate trends, as well as help market players make strategic investment decisions.

On the one hand, the vacancy rate is used by property owners, investors, and developers to assess opportunity areas and the feasibility of new projects. On the other hand, tenants can use this information to negotiate better rental conditions. This has a relatively simple explanation.

A high vacancy rate indicates an excess supply of commercial space, which can result in lower prices and more favorable conditions for tenants. In contrast, a low vacancy rate indicates space scarcity and can increase prices and create more favorable conditions for property owners, investors, and developers.

In Mexico, according to data from SiiLA as of Q2 2023, the average vacancy rate in the industrial and office segments is 1.7% and 21.8%, respectively. This data indicates high demand for industrial properties, which can translate into increased value of investments and long-term profitability. Similarly, the data indicates a balance between supply and demand in the office segment. This suggests that there are conditions of relative price stability and room for growth and expansion in this sector, either through the construction of new offices or the renovation and modernization of existing ones.

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Calculating the vacancy rate

The vacancy rate is commonly expressed as a percentage. It is calculated by dividing the unoccupied commercial space by the total property or properties space and multiplying the result by one hundred. At SiiLA, we calculate this using the gross leasable area or GLA data, which refers to the space within a property that can be leased or used to generate income.

Example: Suppose we have a property with 100,000 square meters of GLA, of which 10,000 square meters are unoccupied. The formula to calculate the vacancy rate is as follows: (unoccupied GLA / total GLA of the property) * 100. We get (10,000 / 100,000) * 100 = 10 when substituting the values. This means that the vacancy rate in this example is 10%.

Now you know how to calculate the vacancy rate. Knowing and making it known benefits investors and potential tenants by providing them with information to make informed decisions. It also stimulates the economy by promoting investment, business activity, transparency, and healthy competition. Remember to check vacancies on SiiLA SPOT!