The EPRA vacancy rate weights empty space by the rent it could earn, not by its size, so a vacant basement and a vacant top floor count very differently.
The EPRA vacancy rate is the estimated rental value (ERV) of vacant space divided by the ERV of the whole completed investment portfolio. On an illustrative 7,700 m2 multi-let office with 740,000 of vacant ERV out of 2,400,000, it is 30.8 per cent, against 35.1 per cent if you measure vacancy by floor area. The difference is the point of the measure: it counts empty space by the rent it could earn.
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Floor area vacancy treats a square metre of basement storage the same as a square metre of top-floor office. For an asset manager that is the wrong question. What matters is how much income is missing from the building, and that depends on what each empty unit would let for today. The European Public Real Estate Association's best practice recommendations define the vacancy rate on ERV for exactly this reason, and most listed property companies and many private funds report it that way. It is also the mirror image of occupancy by rent: one minus the EPRA vacancy rate is the share of the building's rental value that is let.
| Unit | Area m2 | ERV per m2 | Status | ERV |
|---|---|---|---|---|
| Ground floor, retail | 600 | 400 | Let | 240,000 |
| First floor | 1,200 | 300 | Let | 360,000 |
| Second floor | 1,200 | 300 | Vacant | 360,000 |
| Third floor | 1,200 | 310 | Let, in rent-free | 372,000 |
| Fourth floor | 1,200 | 320 | Let | 384,000 |
| Fifth floor | 1,000 | 340 | Vacant | 340,000 |
| Sixth floor | 800 | 380 | Let | 304,000 |
| Basement storage | 500 | 80 | Vacant | 40,000 |
| Total | 7,700 | 2,400,000 |
The ERVs are illustrative and come from the asset's rent roll, where each unit's ERV is the valuer's opinion of the rent it would let for on market terms today. The third floor is let on a signed lease but inside a rent-free period, so it pays nothing yet.
1. ERV of each unit = area × ERV per m2. The whole building: 2,400,000.
2. ERV of vacant units = second floor 360,000 + fifth floor 340,000 + basement 40,000 = 740,000.
3. EPRA vacancy rate = vacant ERV / total ERV = 740,000 / 2,400,000 = 30.83 per cent.
4. For comparison, area vacancy = 2,700 / 7,700 = 35.1 per cent.
Excel, with ERV in column E and status in column D: =SUMIF(D2:D9,"Vacant",E2:E9)/SUM(E2:E9)
The rate is 4.2 points lower than area vacancy because the empty space includes the cheapest space in the building. The basement is 18.5 per cent of the vacant area but only 5.4 per cent of the vacant ERV. The opposite happens just as easily: had the sixth floor been empty instead of the basement, the ERV measure would be the higher of the two. Occupancy by ERV, the figure a business plan should carry, is 69.2 per cent.
The fifth floor alone is 45.9 per cent of the vacant ERV although it is the smaller of the two empty office floors. A letting plan ranked by area would put it behind the second floor; ranked by ERV per m2 it comes first, at 340 against 300.
| Event | Area vacancy | EPRA vacancy |
|---|---|---|
| Base | 35.1% | 30.8% |
| Basement storage let | 28.6% | 29.2% |
| Fifth floor let | 22.1% | 16.7% |
| Second floor let | 19.5% | 15.8% |
| Sixth floor tenant leaves | 45.5% | 43.5% |
| Ground floor retail tenant leaves | 42.9% | 40.8% |
Letting the basement cuts area vacancy by 6.5 points and the EPRA rate by only 1.7, which is the honest picture: 40,000 of rent barely changes the building's income. The two floors move the EPRA measure by about 14 to 15 points each. A retail unit of only 600 m2 leaving adds 10.0 points, because its ERV per m2 is the highest in the building. Asset managers who report area vacancy to an investment committee are reporting the wrong thing to the people who read the income line.
Portfolio vacancy is computed the same way, on summed ERVs, never as an average of building rates. Add a fully let 3,000 m2 building with 750,000 of ERV and the portfolio rate is 740,000 / 3,150,000 = 23.5 per cent.
A rent roll that computes occupancy by area and by rent, alongside WAULT and the expiry profile, is in the free workbook for this case. For the cash view of the same building, see economic occupancy vs physical occupancy, and for the income still to capture on let space, how to calculate reversionary potential.
No. A unit let on a signed lease is occupied even if the tenant pays nothing yet, so its ERV sits in the denominator only. On the illustrative office, wrongly treating the third floor in rent-free as vacant adds 372,000 to the numerator and lifts the rate from 30.8 to 46.3 per cent. Rent-free shows up in the gap between passing rent and ERV, not in vacancy.
Because ERV per square metre differs between units. Low-value space such as storage weighs heavily by area and lightly by rent: the illustrative basement is 18.5 per cent of the vacant area but 5.4 per cent of the vacant ERV. Here area vacancy is 35.1 per cent and EPRA vacancy 30.8; on another building the gap can run the other way.
No. The rate is measured on the completed investment portfolio, so schemes under development are left out of both numerator and denominator. Adding an illustrative empty 2,000 m2 scheme with 700,000 of ERV to the office would push the reported rate from 30.8 to 46.5 per cent, a figure that says nothing about letting performance.
This article is one calculation from The Real Estate Asset Manager. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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