What does an actual vacancy rate exceeding the natural vacancy rate suggest?

When the actual vacancy rate exceeds the natural vacancy rate, it indicates that there may be an over-supply of space in the market. The natural vacancy rate reflects the vacancy that occurs under normal market conditions, considering factors such as property turnover, market trends, and absorption rates. If the actual vacancy rate is higher than this natural level, it suggests that there is more space available than tenants are willing to occupy, leading to excess inventory.

This scenario can create downward pressure on rental prices, as owners might need to reduce rents or offer incentives to attract tenants. Additionally, an oversupply can signify that too many properties have entered the market relative to demand, which challenges property owners and developers to reassess their strategies.

In contrast, a strong demand for space would typically maintain or decrease vacancy rates. Healthy property values and stability in rental prices likely correlate with supply and demand equilibrium, rather than a situation where actual vacancies exceed natural vacancies. Thus, the outcome of a vacancy rate scenario highlights that the market is struggling to sustain itself, confirming potential over-supply conditions.