Patty and I enjoy the outdoors, especially remote locations in the mountains. No buildings, no people, just empty.

Patagonia provides lots of opportunities to enjoy vacant space. That's a very good thing, in Patagonia. But in our day-to-day lives in the Puget Sound apartment market, vacant space isn't a good thing.

Last week we looked at how unit size has a significant impact on the rate of rent growth. This week's video looks at how unit size influences vacancy rates.

We’re just going to focus on King County.

But you can easily do this analysis for other counties or even down to the neighborhood level.

To recap the conclusions from last week’s video, we saw rents for the various unit types moved up and down together, almost in sync.

But looking a little deeper, rent growth was strongest in smaller units and weakest in the largest units.

Studio rents climbed almost 4.5% compounded annually over the past 16 years.

By comparison, three-bedroom rents climbed just 3.3% a year.

It is reasonable to expect rents to climb more when vacancies are lower, and climb less when vacancies are higher.

So this analysis suggests that vacancies were most likely lower in the smaller units.

But that’s what we need to look into.

The next chart shows vacancy rates in King County by bedroom type.

Just like the rent trend, vacancies move up and down similarly for each unit type.

But when we look at the total impact vacancies have on revenue over these 16 years:

• it is clear that rent loss from vacancies was lowest in studio apartments, at 4.4%,

• and then climbed through each bedroom type, reaching 6% for 3-bedroom apartments.

So, when you put it all together, theory proves to be true: higher vacancies impede rent growth.

But more important than just proving that theory works, this analysis shows that, at least over the past 16 years, smaller units outperformed larger units in King County.

This won’t necessarily be the case in every neighborhood, but since the performance differences are significant, it sure seems to make sense to do this type of analysis wherever you plan to invest.

Yes, we like vacant places, but only when we go out in the mountains.

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