Effective occupancy runs below contracted occupancy when rent rolls are tested against tenant interviews. Sublet space and tenants operating below their contracted footprint account for most of the gap. Income can be contractually sound and economically fragile at the same time, and the two are priced very differently.
What does a rent roll record?
Contracts. Who is obliged to pay what, until when, with what break rights. It is an accurate document about a set of legal obligations and it is frequently read as a description of a building.
It does not record whether space is occupied, whether it has been sublet, or whether the tenant intends to be there at the next break.
That distinction is not pedantry. A rent roll is the correct document for the question it answers, and every party in a transaction relies on it for exactly that. The exposure comes from the second question it silently appears to answer — whether the building is working — which it was never constructed to address and which nothing in its format signals is missing.
Where does contracted differ from occupied?
Wherever a tenant has taken more space than it uses, which is common after headcount reductions, and wherever space has been sublet, which the rent roll may not reflect at all.
The gap matters because it predicts behavior at break and renewal. A tenant paying for space it does not use has an obvious action available to it, and the gap reads the way a like-for-like number does.
Sublet space is the harder of the two to see, because the head lease continues unchanged and the landlord's records may carry no trace of the arrangement. The tenant remains contractually good for the rent, so the schedule is accurate. What has changed is that the space is now someone else's problem to fill at the next break, and the renewal decision will be made accordingly.
What do tenants intend to do?
More than they will say to a landlord and readily to a researcher. Space plans, headcount trajectory and whether the site still fits the operating model are all discussable, and all predictive.
Facilities managers are frequently the most informed and least guarded, because they deal with the practical consequences of a space decision rather than negotiating it.
Timing shapes what they will say. A tenant two years from a break discusses space plans as an operational matter; the same tenant six months out is in a negotiation and will say considerably less. The window in which the answers are both informed and unguarded is wider than most diligence timetables assume, which is an argument for asking early rather than at the point of underwriting.
Who can tell you what is real?
Tenants and facilities staff, plus direct observation. Tenants describe headcount and space plans; facilities staff know which floors are dark; observation confirms both.
Neighboring occupiers are an underused source on a multi-let asset, since they see arrivals, departures and fit-out activity across the building — which is the part a walkthrough alone will not give you.
Triangulating them matters because each is partial in a predictable direction. Tenants understate the space they intend to give back, facilities staff know the floors but not the plan, and observation catches the current state without the reason for it. Where the three agree the finding is solid; where they diverge, the divergence usually points at a decision that has not been made yet.
What does this do to valuation?
A valuation capitalizes income the rent roll implies is durable. Where effective occupancy diverges from contracted, the income is contractually sound and economically fragile, and those are priced very differently.
The divergence also predicts the reversionary case, which is where most of the disagreement in a real estate diligence tends to sit.
It also changes what a buyer should ask for in the process. Aggregate occupancy data, sublet consents on file and any correspondence about space reductions are normally available and rarely requested, because the rent roll appears to have answered the question. Asking for them costs nothing and establishes whether the gap is worth doing fieldwork on at all.