Physical Occupancy
The share of rentable space that is occupied by tenants, regardless of whether those tenants are paying full rent.
Definition
Physical occupancy is occupied square footage (or units) divided by total rentable square footage (or units). It answers how full the building looks: leased suites with tenants in place count as occupied even if they are in free rent, on abated rent, or paying below market. Small bay operators watch physical occupancy because multi-tenant buildings fill and empty one bay at a time, and a few vacant contractor units can move the percentage quickly. Physical occupancy alone does not equal income health—economic occupancy and collections matter more for NOI—but lenders and brokers still quote it as the headline fullness metric. Compare it with economic occupancy to see whether the rent roll's dollars match the occupied SF story.
Formula
Physical Occupancy = Occupied SF / Total Rentable SFExample
A 50,000 SF flex building has 46,000 SF occupied and 4,000 SF vacant. Physical occupancy = 46,000 / 50,000 = 92%. Two of the occupied units are in free rent this month, so physical occupancy stays 92% while economic occupancy is lower.
See Also
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