Every investor knows that tenant turnover is inevitable, but how it impacts your portfolio depends on your property type. Vacancy risk in commercial real estate is critical when evaluating investment opportunities.
In this blog, we’ll break down how vacancy affects single-tenant and multi-tenant commercial properties, compare their risk profiles, and explore which might be the better fit for your investment strategy.
Vacancy risk in commercial real estate refers to the potential for lost rental income due to tenant turnover or unleased space. It’s one of the most important factors investors must consider when evaluating a property, regardless of its size or location.
Vacancy risk affects more than just rent collection. It can impact:
For investors, managing vacancy risk isn’t just about minimizing downtime—it’s about maintaining long-term stability. That’s why understanding how vacancy risk plays out in different property types is essential, especially when comparing single-tenant vs. multi-tenant vacancy exposure.
Single-tenant commercial properties offer simplicity, long-term leases, and often strong tenant profiles. However, when that one tenant leaves, the impact can be significant.
When a single-tenant property goes vacant, the income loss is 100%. There’s no buffer. The property produces no rental income until a new tenant is secured and moved in.
This is especially challenging if:
Even if the property is in a good location, it may sit vacant for several months while the space is marketed and shown.
Many single-tenant spaces are customized to the prior tenant’s needs. This can make it harder to re-lease the property quickly. Prospective tenants may require renovations or new layouts, which add time and cost.
Additionally, the leasing strategy relies heavily on:
If the property served a specialized function, the pool of replacement tenants may be small.
To reduce vacancy risk in single-tenant assets, investors can take proactive steps during the lease negotiation process:
A well-structured lease with a reliable tenant can offset some of the risks associated with a potential vacancy.
Multi-tenant commercial properties (like office parks or strip centers) spread income across several leases. When one tenant leaves, the entire property doesn’t go dark.
With multi-tenant assets, the departure of a single tenant results in a partial loss of income, not a complete shutdown. This can help maintain more consistent cash flow and reduce financial pressure on the owner.
For example, losing one 2,000 SF tenant in a 20,000 SF building means only a 10% vacancy, not 100%. This type of diversification makes the investment more resilient.
Multi-tenant spaces typically comprise smaller suites, which are easier to lease than large single-tenant properties. A larger pool of businesses is looking for spaces under 3,000 SF, especially in markets like Baltimore and D.C.
This allows for:
It also makes it possible to stagger lease expirations, reducing the likelihood of multiple vacancies at once.
While multi-tenant properties offer lower vacancy risk, they also require more active involvement. Managing multiple leases, tenant relationships, and maintenance needs adds complexity.
However, this active management also allows for:
The key is having a strong property management team in place that can handle the day-to-day responsibilities and tenant coordination effectively.
There’s no one-size-fits-all answer. The right investment depends on your risk tolerance, goals, and management preferences. Here’s a brief comparison of how single-tenant vs multi-tenant vacancy risk stacks up:
|
Factor |
Single-Tenant |
Multi-Tenant |
|
Income Stability |
High when occupied; zero when vacant |
More stable across tenants |
|
Vacancy Impact |
100% loss of income |
Partial loss of income |
|
Lease-Up Timeline |
Longer (depends on space size) |
Shorter (smaller units, higher demand) |
|
Re-Tenanting Flexibility |
Often limited |
Higher (modular units, varied uses) |
|
Management Involvement |
Lower |
Higher |
|
Diversification |
None |
Built-in |
A single-tenant property may work well if you prefer a more passive, long-term hold and are comfortable with a strong anchor tenant. However, if income diversification and reduced vacancy risk are top priorities, a multi-tenant asset offers more flexibility.
In this section, it’s also important to evaluate your own investment strategy:
Want to know which property type matches your risk profile? Take our Property Strategy Quiz to find out which investment style fits your goals.
Vacancy risk is an unavoidable part of commercial real estate investing, but it can be managed. Whether you're considering a single-tenant property for its simplicity or a multi-tenant building for its built-in diversification, the key is understanding how tenant turnover will affect your income and overall investment performance.
At Kenwood Management, we’ve helped investors across the Baltimore and D.C. region choose the right property types for their portfolios. Our team brings decades of experience in asset management, tenant retention, and strategic leasing—so you can feel confident about protecting your returns, even when the market shifts.
Protect your portfolio from vacancy risk—get personalized insights with our investment strategy quiz and find out which type of investment is best for you.