Absorption And What It Actually Measures

Absorption appears in every market report and is frequently misread as a measure of demand. It measures something narrower and more useful than that.

The definition

Net absorption is the change in occupied space between two dates. It nets new occupancies against space vacated during the same period.

Gross absorption counts only the space newly occupied, ignoring what emptied, which makes it a measure of leasing activity rather than of net change.

The two can point in opposite directions. Heavy leasing activity alongside heavy departures produces strong gross absorption and negative net absorption.

Reading it against deliveries

Absorption on its own says nothing about whether a market is tightening. That requires comparing it against how much new space arrived in the same period.

Absorption exceeding deliveries means occupied space grew faster than total space, and vacancy falls. Deliveries exceeding absorption means the reverse.

This comparison is why the two figures are almost always published together, and why either one alone can support opposite conclusions about the same market.

Why the figure is lumpy

A single large tenant moving can dominate a quarter's absorption in a smaller market, producing a number that describes one decision rather than a trend.

The same tenant vacating an older building while occupying a new one shows as absorption in one submarket and negative absorption in another.

Reading several periods together, rather than reacting to one, filters most of this and is why annual figures are more informative than quarterly ones in smaller markets.

Occupied is not the same as leased

Space can be leased but not occupied, which happens when a tenant signs ahead of a move or holds space they no longer use.

This shadow space is real competition, because a tenant paying for space they do not need will often try to sublet it.

Absorption based on physical occupancy and absorption based on lease status therefore diverge, and knowing which a report uses matters for interpretation.

What absorption cannot tell you

It is a record of what happened, not a forecast. Strong absorption describes past demand and says nothing about whether that demand continues.

It also says nothing about the terms on which space was let. A market can absorb space rapidly at falling rents with heavy concessions.

Reading absorption alongside effective rents and concession levels is the only way to distinguish a market filling on strength from one filling on price.