Q1 2026 Vacancy Rates: What They Mean for Your CAM Calculations
The Numbers
The Q1 2026 brokerage reports paint a consistent picture: office vacancy remains elevated, industrial is tightening, and retail varies sharply by subtype.
| Property Type | National Avg Vacancy Q1 2026 | YoY Change |
|---|---|---|
| Office (all classes) | 22.4% | +0.8% |
| Office (Class A CBD) | 19.1% | +0.3% |
| Office (Suburban) | 25.7% | +1.2% |
| Industrial | 6.8% | +1.1% |
| Retail (Neighborhood) | 5.2% | -0.4% |
| Retail (Power Center) | 8.9% | +0.2% |
For CAM reconciliation, the number that matters isn't the vacancy rate itself — it's the gap between actual occupancy and the gross-up threshold in your leases.
The Gross-Up Amplification Effect
Most office leases set the gross-up threshold at 95%. At current vacancy levels:
| Actual Occupancy | Gross-Up Threshold | Multiplier | $100K Variable Expense Becomes |
|---|---|---|---|
| 95% | 95% | 1.000x | $100,000 |
| 90% | 95% | 1.056x | $105,556 |
| 85% | 95% | 1.118x | $111,765 |
| 80% | 95% | 1.188x | $118,750 |
| 75% | 95% | 1.267x | $126,667 |
| 70% | 95% | 1.357x | $135,714 |
A building at 75% occupancy (roughly the national office average when you account for sublease space) is applying a 1.267x multiplier to every variable expense. That multiplier amplifies errors too.
If you misclassify $20,000 of fixed expenses as variable at 95% occupancy, the overcharge is $20,000. At 75% occupancy, that same misclassification becomes a $25,333 overcharge. The error itself didn't get bigger — the gross-up made it bigger.
Metro-Level Implications
The national average obscures wide variation. Controllers need to think about this at the property level.
High-vacancy metros (office > 25%): Houston (26.5%), San Francisco (24.8%), Chicago suburbs (27.1%), Dallas suburbs (25.3%)
In these markets, gross-up is doing significant work. A Houston Class A building at 73% occupancy has a gross-up multiplier of 1.301x. Every dollar of variable expenses becomes $1.30 in billed charges. At that multiplier level, the variable/fixed classification of each expense category has direct, material impact on tenant bills.
Moderate-vacancy metros (office 18-22%): New York Manhattan (18.3%), Boston (20.1%), Seattle (21.4%), Denver (22.0%)
These markets still trigger gross-up but at more modest multipliers (1.10x-1.20x). Errors are amplified but not dramatically.
Low-vacancy property types: Industrial (6.8% national), neighborhood retail (5.2%)
Gross-up is largely inactive in these segments. At 93%+ occupancy, the multiplier is under 1.03x. Gross-up errors exist but the dollar impact is minimal.
What Controllers Should Do Now
1. Validate your variable/fixed classification. At high vacancy, this classification drives the largest dollar swings in your reconciliation. Property taxes are fixed. Insurance is fixed. Janitorial is variable. Utilities are partially variable. Security is partially variable. Management fees depend on the fee base — if calculated as a percentage of revenue, they're variable; if flat-fee, they're fixed. Get each category right.
2. Use weighted average occupancy. If your building went from 80% occupied in January to 72% occupied in September (lost a tenant), using the year-end snapshot understates occupancy for 8 months and overstates it for 4. Weighted average gives the correct denominator for the full year.
3. Check your lease thresholds. Not every lease uses 95%. Some use 90%. Some are silent on gross-up entirely (which means you can't gross up at all for that tenant). Pull each lease and confirm the threshold before running the calculation.
4. Document the math. At high vacancy, the gross-up adjustment is large enough that tenants will question it. Show the calculation explicitly: actual occupancy, threshold, multiplier, category-by-category application. Transparency reduces disputes.
5. Run CapVeri on your reconciliation. The detection engine validates gross-up calculations against occupancy data, flags fixed expenses incorrectly classified as variable, and catches threshold mismatches. At current vacancy levels, gross-up errors are both more likely and more expensive.
The Occupancy Rebound Question
Some markets are showing early signs of office absorption improvement. Austin, Nashville, and parts of South Florida posted positive net absorption in Q4 2025.
For reconciliation purposes, what matters is the occupancy in the year you're reconciling, not the forecast. If you're reconciling 2025 and your building was 74% occupied for the year, use 74%. Don't adjust for expected 2026 improvement — that's a budgeting exercise, not a reconciliation input.
The market will eventually rebalance. Until then, controllers need to operate their reconciliation processes for the market they have, not the market they want.
Related Resources
- Houston Office Market: CAM Billing in a 26% Vacancy Environment — Metro deep dive
- Gross-Up Calculation Guide — Step-by-step methodology
- Vacancy Cost Allocation — Gross-up vs absorption vs landlord-bears models
- Denominator Drift — How occupancy changes create billing errors