Economic occupancy measures the percentage of a property's potential gross rental income that is actually being collected, rather than simply counting how many units are occupied. It accounts for vacancy loss, rent concessions, bad debt, and any discounts given to tenants, giving a fuller picture of real revenue performance than a simple occupied-versus-vacant count.
A property can show high physical occupancy while its economic occupancy lags behind, if tenants are paying reduced rent under concessions or if collections are running behind billed amounts. Because of this, economic occupancy is generally considered the more accurate gauge of a property's income health, and it is a standard line item in operating statements and underwriting models. Comparing economic occupancy against physical occupancy over time can also reveal whether a property's revenue challenges stem from vacant space or from pricing and collection issues within occupied units.
Further reading: An Investor's Guide to Real Estate Return Metrics
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