Vacancy
Vacancy is the share of lettable area in a commercial property or a market that is not let at a given point in time. It is most often expressed as a percentage of total area and is used both as an operational KPI for a single building and as a market indicator for a whole segment or a whole city. Lost income is roughly estimated as vacancy multiplied by market rent per square metre, and vacancy is one of the most important components pulling NOI down from gross contract rent.
It is useful to distinguish between structural and frictional vacancy. Frictional vacancy is short-term downtime between two tenancies: a tenant moves out, the premises are refurbished, a new tenant moves in after two to four months. It is expected and is priced into the valuation as a normalised "vacancy & collection loss" of typically 3-5% of gross rent in a well-functioning office market. Structural vacancy, by contrast, is persistent and tied to the location, the standard of the building or demand in the segment: an older office building outside the public transport network, a shopping centre in a declining retail region, a warehouse with the wrong dimensions. Structural vacancy cannot be expected to fall on its own and requires either repositioning, upgrading or accepting a lower market value.
The difference between structural and frictional vacancy has direct consequences for pricing. A building with 8% frictional vacancy in an upturn gets a limited discount. The same figure in a structural downturn triggers a significant addition to the capitalisation rate. That is why due diligence on a building looks at the letting history, not just the snapshot figure: how long the units have stood empty, how many viewings have taken place, and what the trend is over three, five and ten years. A "lease expiry cliff", see WAULT, can also turn today's 5% into tomorrow's 30% overnight.
Norwegian office market figures are published quarterly by the brokerage houses Akershus Eiendom, Newsec, DNB Næringsmegling, and collectively via Eiendom Norge, with vacancy broken down by submarket (Vika/Aker Brygge, Skøyen, Lysaker, Nydalen, Bjørvika and so on). The figures vary a lot between segments: prime offices in Vika can sit below 4%, while older fringe buildings sit well above 10%. Logistics has historically had lower vacancy than offices and retail. In the physical retail market, vacancy has risen structurally in recent years, driven by growth in logistics property and e-commerce.
In addition to area vacancy, some players report "economic vacancy", which weights area by rent levels: a large, cheaply let unit means a smaller loss of income than a small, expensive office unit, and economic vacancy captures this. Both measures are used side by side, so always check which definition sits behind a reported percentage.
In Placepoint you can open the property panel and view tenants where the data exists, so that you can calculate vacancy yourself for a building or a portfolio based on the contract situation rather than a city market average.
How it looks in Placepoint
In Placepoint you find this in Property panel:
From Placepoint's dictionary: Vacancy
More information: Eiendom Norge: market reports, Akershus Eiendom: Market Report, Newsec: Property Asset Management
English: Vacancy rate.
Frequently asked questions
What is the difference between structural and frictional vacancy?
Frictional vacancy is short-term downtime between two tenancies and is expected in a functioning market. Structural vacancy is persistent and tied to location, the standard of the building or demand in the segment. Structural vacancy pulls the market value down significantly.
Where do I find up-to-date vacancy figures for the Norwegian office market?
Eiendom Norge, Akershus Eiendom, Newsec and DNB Næringsmegling publish quarterly market reports with vacancy broken down by submarket and segment.
What counts as "normal" vacancy?
In a well-functioning office market, normalised vacancy sits at 3-5%. Prime offices in Oslo have historically sat below 4%, while older fringe areas can sit well above 10%. The figures vary significantly between segments and submarkets.
What is the difference between area vacancy and economic vacancy?
Area vacancy measures empty area as a share of total area. Economic vacancy weights by rent level and captures that a large, cheap unit means a smaller loss of income than a small, expensive unit. Both measures are used in parallel.