In Practice
Absorption tells you how fast units are being filled. Count the leases that start, subtract the move-outs, and you have net absorption for the period. It matters most in lease-up, when a new building has to fill from zero, and in any market where several properties are competing for the same renters.
You will see it in the weekly report during lease-up, on the owner call, in the lender update and in the market study that justified the project in the first place. Owners use the monthly pace to forecast when the building reaches stabilization. Regional managers use it to compare properties in the same submarket.
Example: a 200-unit building signs 22 leases in a month, but 6 early residents move out. Net absorption is 16 units. If 100 units are still vacant, that pace takes about six more months to fill. If the plan said four months, you have a conversation to prepare for: pricing, concessions, marketing or the product itself.
Common mistake: reporting gross leases and calling it absorption. Move-outs and cancelled applications have to come out. Also agree on the period and on whether pre-leases count, because the owner and the lender may define it differently.
How to calculate it
Net absorption equals move-ins minus move-outs over the period. Example: 18 move-ins and 5 move-outs in a month is 13 units absorbed. To estimate time to fill, divide the units still vacant by the monthly absorption: 78 vacant units at 13 a month is about six months.
Not to Be Confused With
Occupancy is a snapshot of how full the building is right now. Absorption is the speed at which that number is changing.
Absorption: Common Questions
What is a good absorption rate?
There is no single number. It depends on the market, the size of the property and the pricing. Compare your pace to the pace in the pro forma and to similar new properties nearby.
What is the difference between absorption and occupancy?
Occupancy is a snapshot of how full the building is today. Absorption is the pace of change over time, so it tells you how quickly the snapshot is moving.
