Commercial Real Estate Absorption Calculator
Net Absorption:
0 sq. ft.
Net Absorption Rate:
0.00%
Market Status:
—
Understanding Absorption Rate in Commercial Real Estate
In commercial real estate (CRE), Absorption Rate is a critical key performance indicator (KPI) that measures the demand for commercial space within a specific market over a given time period. Unlike residential real estate, which often focuses on "months of supply," CRE professionals focus on Net Absorption—the net change in occupied space.
Key Formulas
This calculator determines the market health using the following standard industry formulas:
- Gross Absorption: Total square footage leased during the period.
- Net Absorption: (Space Leased) – (Space Vacated). This indicates if the market is growing or shrinking in terms of occupancy.
- Absorption Rate (%): (Net Absorption / Total Market Inventory) × 100. This percentage shows the relative strength of the demand against the total stock.
Interpreting the Results
The output of the calculation tells a story about supply and demand:
- Positive Absorption: More space was leased than vacated. This usually indicates strong demand, falling vacancy rates, and potentially rising rental rates.
- Negative Absorption: More space was vacated than leased. This suggests weakening demand, rising vacancy rates, and downward pressure on rents.
Real-World Example
Imagine a downtown office market with a total inventory of 5,000,000 sq. ft. During the first quarter:
- New leases signed: 100,000 sq. ft. (Gross Absorption)
- Tenants moving out: 25,000 sq. ft.
Net Absorption: 100,000 – 25,000 = 75,000 sq. ft.
Absorption Rate: (75,000 / 5,000,000) × 100 = 1.5%
This positive figure indicates a healthy growing market.