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IntermediateBrazilian REITs · Lesson I4.4 · Module I4

Physical and financial vacancy are not the same

Module I4: Analysis indicators

11 slides~5 minquiz at the end

In this lesson

  • Physical: vacant area
  • Financial: lost rent
  • Why financial vacancy hurts more
See the slides
Empty unfurnished office floor ready to lease

Brazilian REITs · Lesson I4.4

40% empty. How much income does that cost?

It depends on which square meters went empty.

Two measures

Physical vs financial vacancy

Physical

sq m

  • Vacant area ÷ gross leasable area (GLA)
  • Tells you how much of the building is empty

Financial

R$

  • Lost rent ÷ potential rent
  • This is the one that hits your income

The example

One building, three floors

AreaPotential rent
Floor A10,000 sq mR$ 1,000,000
Floor B10,000 sq mR$ 600,000
Floor C5,000 sq mR$ 300,000
Total25,000 sq mR$ 1,900,000

Monthly rent: R$ 100/sq m on floor A, R$ 60/sq m on floors B and C.

Floor A moves out

One move-out, two numbers

10,000 sq mvacant÷25,000 sq mGLA=40%physical
R$ 1.0Mlost rent÷R$ 1.9Mpotential=52.6%financial

The priciest space emptied: income falls more than the area.

What if it were the cheap floor?

Not every square meter is worth the same

Floor A empty

52.6%

  • 40% of the area
  • Over half the rent

Floor C empty

15.8%

  • 20% of the area
  • R$ 300K ÷ R$ 1.9M

Big number: financial vacancy.

Where vacancy shows up

Three places to check

  • Management reportVacant area and leases, month by month.
  • Material factA move-out with a significant impact on income.
  • Date of the figureLast year's vacancy doesn't tell today's story.

CVM Resolution 175, Annex III, art. 37, §1, II. On this site, a figure older than 9 months can't score above neutral.

Who bears the risk

Vacancy weighs on income

If one tenant leaves and another moves in, the fund isn't at risk — your income is.

That's why, in the site's score, vacancy sits in the income pillar.

Remember this

Three takeaways

  1. Physical = areaVacant square meters ÷ leasable area.
  2. Financial = moneyLost rent ÷ potential rent.
  3. Financial is what hurtsLosing expensive space cuts income more than area.

Quick quiz · 1 of 2

10% of the area went empty, but it paid 25% of the rent. Financial vacancy is:

See answer

25%. Financial vacancy measures the rent no longer coming in, not the area. Physical vacancy is the 10%.

Quick quiz · 2 of 2

A warehouse with 20,000 sq m of GLA and 5,000 sq m vacant. Physical vacancy?

See answer

5,000 ÷ 20,000 = 25%. To know how much income it costs, you still need that area's rent.

Lesson complete

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I4.5Intermediate · Lesson I4.5Defaults, grace periods and rent discountsA 100% occupied building can still collect half the rent.Continue
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Image credits
  • Andrea De Santis · Pexels · Pexels License — Pexels
  • Alena Darmel · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.