Vacancy allowance

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A vacancy allowance is a deduction from a property's potential rent for income expected to be lost while space stands empty, between tenants or before new space is let. In a forecast it may be a share of gross rent, such as 5% of US$2.0m, which is US$100,000 a year; in a valuation it is often modelled as a void period, with incentives and letting costs, at each lease expiry. A lender compares it with the leases: an even percentage suits a building with many tenants, while a single-let building is either full or empty, and its exposure is the months without rent after that lease ends.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.