Physical occupancy is the share of a property's total units or square footage that is occupied by tenants at a given point in time, regardless of how much rent those tenants are actually paying. It is typically expressed as a simple percentage, occupied units divided by total units, and is one of the first figures reported in a leasing or operating update.
Because physical occupancy does not account for concessions, discounted rent, or delinquent collections, it can paint an incomplete picture of a property's actual financial performance when viewed on its own. A building can be fully leased and still underperform on income if tenants are paying below-market rates or falling behind on payments. For that reason, physical occupancy is most useful when read alongside economic occupancy, which measures the rental income actually collected relative to what the property could theoretically earn.
Further reading: Conservative vs. Aggressive Underwriting: 12% IRR to 17% IRR
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