Economic Occupancy
The share of potential rental income actually collected, reflecting vacancy, free rent, concessions, and uncollected balances—not just whether space is filled.
Definition
Economic occupancy measures income productivity: collected (or billable) rent divided by potential gross rent at full occupancy and market or face rents, depending on the definition used. Unlike physical occupancy, it penalizes free rent, abatements, credit loss, and sometimes loss-to-lease when potential is defined at market. Two small bay buildings can both show 95% physical occupancy while one runs much lower economic occupancy because renewals included heavy free rent or a few tenants are delinquent. Investors prefer economic occupancy when judging whether a lease-up is truly stabilizing NOI. Always ask which denominator the broker used—in-place face rent vs market rent—before comparing properties.
Formula
Economic Occupancy = Collected (or Billable) Rent / Potential Gross RentExample
A building's potential gross rent at face rates is $600,000. After vacancy, one month of free rent on new deals, and $12,000 of uncollected balances, collected rent is $540,000. Economic occupancy = $540,000 / $600,000 = 90%, even if physical occupancy is 94%.
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