True or False: Economic vacancy is more useful than physical vacancy in calculating NOI.

The concept of economic vacancy refers to the income lost when a property is not generating its full potential revenue, usually due to factors like uncollectible rent or rental concessions. In contrast, physical vacancy focuses solely on the physical presence of unoccupied units, without considering the financial implications of that vacancy, such as potential rent loss.

Understanding this distinction is crucial when calculating Net Operating Income (NOI), which is a key indicator of a property's profitability. Economic vacancy provides a more comprehensive view of a property’s performance since it takes into account actual revenue versus potential revenue. Thus, when assessing the financial health of an investment property, considering economic vacancy offers a clearer picture of the impact of vacancy on income generation.

In many cases, relying solely on physical vacancy can be misleading because it does not reflect the financial impact of vacancies on overall income. Therefore, considering the economic factors at play makes economic vacancy more useful for a thorough analysis of NOI.

This perspective is essential, especially when assessing investment properties, as it allows investors to make informed decisions based on both operational performance and market conditions.