Get An Equilibrium Analysis Of Real Estate - Nber

Frictional vacancy may be described as space needed to service normal tenant movements within a market area. Frictional vacancy rate is a theoretical construct and it cannot be calculated. In the real estate industry, the standard for frictional vacancy rate is assumed to be 5%.

High vacancy rates indicate that a property is not renting well while low vacancy rates can point to strong rental sales. In addition to being used for real estate analysis, vacancy rates can also be applied to the employment sector.

(The analysis below comes from Trepp and Commercial Real Estate Direct's 2023 edition of The Mid-Year Magazine, a half-year recap of the commercial real estate finance and commercial mortgage-backed securities markets. Access the magazine here.)

Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.

The theoretical balance where demand and supply for a. property, good, or service are equal.

Among Los Angeles residents, there is a homeowner vacancy rate of 1.0% and a rental vacancy rate of 3.3% from a total of 1,457,762 units.