Vacancy rate is the percentage of total industrial building inventory in a given market that is currently unoccupied and available for lease. It's one of the most closely watched indicators in commercial real estate because it directly signals negotiating leverage — low vacancy favors landlords with rising rents, while high vacancy favors tenants with more concessions and negotiating room.
How vacancy rate is calculated and used
Vacancy rate is calculated by dividing total vacant square footage by total inventory square footage in a defined market or submarket. Brokerages and research firms track this quarterly, often broken out by building class, size range, and submarket to give a more precise read than a single citywide number.
A market with 3–5% vacancy is generally considered tight, favoring landlords with rising rents and fewer concessions. Markets above 8–10% vacancy typically shift leverage toward tenants, who can negotiate more aggressively on rent, free rent periods, and TI allowances.
Reading vacancy rate as a tenant
| Vacancy rate | Market condition | Tenant leverage |
|---|---|---|
| Under 5% | Tight, landlord-favorable | Low — expect rising rent, few concessions |
| 5–8% | Balanced | Moderate — some negotiating room |
| Above 8–10% | Loose, tenant-favorable | High — leverage for rent and concessions |
What to watch for before committing
Submarket vs citywide figures
A citywide vacancy rate can mask tight or loose conditions in your specific submarket — always drill down to the relevant geography.
Class-specific vacancy
Class A vacancy often differs significantly from Class B/C vacancy in the same market — check the rate for your target building class.
Trend direction, not just level
A rising vacancy rate signals softening conditions even if the current number still looks tight — check the trend over the last several quarters.
Shadow vacancy
Some space is technically leased but sitting empty and available for sublease — ask brokers about shadow vacancy, which isn't always captured in headline figures.
New supply pipeline
Check under-construction inventory in the pipeline — a wave of new deliveries can push vacancy up even in a currently tight market.
Size-tier specific rates
Vacancy for large bulk distribution space can differ sharply from small-bay industrial — match the data to your actual size range.
When you need to know this
- Evaluating negotiating leverage — gauging how much room exists to negotiate rent and concessions in a target market
- Site selection across markets — comparing supply-demand balance between candidate metro areas or submarkets
- Timing a lease renewal or relocation — understanding whether market conditions favor waiting or acting now
- Investment underwriting — assessing a market's health when evaluating an industrial property purchase
Frequently asked questions
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