Most multifamily operators celebrate high occupancy rates. “We’re 95% leased!” they say. But what if I told you that number might be lying?
Welcome to the world of shadow vacancy — the income-killing problem hiding in plain sight.
🔍 What Is Shadow Vacancy?
Shadow vacancy refers to units that are technically occupied but not generating full revenue. This can occur due to:
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Rent concessions (discounted or free rent)
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Delinquent tenants who haven’t paid rent in months
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Internal holds (units occupied by staff or left intentionally off-market)
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Inherited leases with below-market rents
In your software, those units show as “occupied.” But your bank account tells a different story.
📉 Why This Matters More Than Ever
In a market where cap rates are tightening and interest rates are higher, you can’t afford to base decisions on inflated numbers. Shadow vacancy creates a false sense of performance, especially when you’re raising capital, reporting to investors, or planning refinances.
Let’s say you own a 100-unit property and report 95% physical occupancy. But 10 of those tenants are on deep concessions, and 5 are habitually late on rent. That means your economic occupancy could be closer to 80%.
That’s a 15% gap between perception and reality.
🧠 How to Identify Shadow Vacancy
Start by conducting a rent roll audit. Here’s what to look for:
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Units generating less than 90% of market rent.
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Delinquent accounts past 30+ days.
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Staff or courtesy units listed as “leased.”
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Any unit consistently paying less than contract rent.
Also review your Effective Gross Income (EGI) vs. Potential Gross Income (PGI). The wider the gap, the more shadow vacancy you likely have.
🛠️ How to Solve It
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Stop relying on physical occupancy as your headline number.
Investors and lenders care more about EGI and NOI. Make those your focus. -
Audit leasing practices.
Are your leasing agents overusing concessions? Are renewals offered without rent bumps? -
Incentivize based on collected rent, not signed leases.
This realigns your leasing team’s goals with ownership’s bottom line. -
Enforce stronger rent collection policies.
Delinquency management needs to be proactive, not reactive.
🧮 The Bottom Line
Shadow vacancy eats away at your profits and blinds you to operational issues. It’s not enough to have people in your units — those people need to pay, and they need to pay market rates.
Remember: If it’s not producing rent, it’s not really occupied.
Don’t let pretty metrics hide ugly truths.
