Attention Members: Log in to pay your dues today

Calculating Absorption


What is absorption?

Absorption is the amount of space or units leased within a market or submarket over a given period of time (usually one year). Absorption considers both construction of new space and demolition or removal from the market of existing space. It represents the demand over a specified period, contrasted with supply.

When supply is less than demand, vacancy decreases and absorption is positive. When supply is greater than demand, vacancy increases and absorption is negative. A negative absorption can reflect changes in the marketplace, such as a sudden lack of jobs due to a company closing.

Absorption should be disaggregated by type and/or class of property and tabulated over the past three to five years. Emerging patterns will support efforts to forecast future absorption for each year over the holding period. Past absorption and vacancy information can be gathered from industry research firms and trade associations.

How is absorption calculated?

Absorption Example

Suppose a property is located in a region with the following data:

  • Subject property: 62,500 rentable square feet
  • Total office square footage available in region: 2,950,000
  • Subject property market share = 62,500/2,950,000 = 2.12%

Absorption Rates (Square Feet)


Year -5

Year -4

Year -3

Year -2

Last Year

50,000

55,000

63,250

69,575

77,924

From the data provided, you can calculate the absorption rate for each year. This will reveal trends and allow you to make an educated guess at the absorption rate for next year.

Absorption from Year -5 to Year-4 was 10% (50,000 + 10% = 55,000). From Year -4 to Year -3, absorption was 15%; from Year -3 to Year -2, absorption was 10%; and from Year -2 to last year, absorption was 12%.

In light of this historical data, a conservative estimate of absorption could be 10% for next year. Therefore, in this market you could predict that 10% x 77,924, or roughly 85,716 rentable square feet of space could be absorbed.

If the subject property’s estimated market share is 2.12%, then the subject property could have 2.12% x 85,716, or 1,817 rentable square feet in absorption.