Gross Absorption

Gross absorption is measured as the total amount of space (or number of units for residential) leased in a given period divided by the total amount of space (or number of units) in a defined market.

Gross absorption = Total Units/SF Leased in a Given Period ÷ Total Units/SF in the Defined Market

Gross absorption can be a misleading metric because it doesn’t take into account vacancies. To get a more complete picture of the strength or weakness of market leasing, one should look to the net absorption metric. To elaborate, imagine if a market with a total of 100 units had leased 10 units. The gross absorption rate would be 10%. However, what if in that same period, one of either two scenarios happened.

In scenario 1, 10 units vacated, but in scenario 2, 0 units vacated. If there were zero units that were vacated, this would indicate a strong market absorption, but if there were 10 units that vacated, this may indicate that the market is stagnant. We capture this issue of vacated units in the net absorption metric thus it is a more comprehensive metric for understanding a market’s current condition.

Putting Gross Absorption in Context

To understand gross absorption, consider a newly delivered office park, “TechView Business Center,” comprising three buildings with a total of 300,000 square feet of leasable space. In the first quarter of its opening year, TechView managed to lease 90,000 square feet to various technology firms and startups, representing a strong lease-up.

• Total leasable area at TechView Business Center: 300,000 square feet
• Total space leased in the first quarter: 90,000 square feet
• Gross absorption: (Total space leased ÷ Total leasable area) × 100
• Gross absorption rate: (90,000 ÷ 300,000) × 100 = 30%

This gross absorption rate of 30% indicates the total uptake of space without accounting for any spaces that might have been vacated during the same period. As there were no prior tenants, the gross and net absorption rates would be identical at this early stage.

While the gross absorption figure appears robust, it is essential to monitor how it develops, especially as leases expire and tenant turnover begins. This metric alone doesn’t reflect potential vacancies that could lead to a stagnant or declining market, which would be captured in the net absorption rate moving forward.