What is the difference between physical occupancy and economic occupancy?

• A. Physical occupancy measures the number of units leased, regardless of rent collection.
• B. Economic occupancy equals physical occupancy adjusted for concessions.
• C. Physical occupancy is units physically rented; economic occupancy accounts for rent actually collected after concessions, allowances, and write-offs.
• D. Economic occupancy is measured by market rents only.

Answer: (C)

Think of occupancy in two ways: space vs cash flow. Physical occupancy counts how many units are actually leased, regardless of how much rent is collected. It’s simply leased units divided by total units.

Economic occupancy looks at cash performance: it measures how much rent is actually collected relative to the rent that could be collected if all units were leased at the current rents. It accounts for concessions, allowances, and write-offs. So even if many units are leased, heavy concessions or delinquencies can push economic occupancy below physical occupancy.

For example, if 90 out of 100 units are leased (physical occupancy 90%), but the rents collected from those leases total only 80% of the potential rent due to concessions and write-offs, the economic occupancy would reflect that realized cash flow as a percentage of the potential rent. This distinction is why the correct answer describes physical occupancy as units physically rented and economic occupancy as rent actually collected after concessions, allowances, and write-offs.