Net Absorption Rate Calculation

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Net Absorption Rate Calculator

Calculation Results

Net Absorption: sq ft

Net Absorption Rate: %

function calculateAbsorption() { var startSqFt = parseFloat(document.getElementById("initialOccupied").value); var endSqFt = parseFloat(document.getElementById("finalOccupied").value); var totalInv = parseFloat(document.getElementById("totalInventory").value); if (isNaN(startSqFt) || isNaN(endSqFt) || isNaN(totalInv) || totalInv 0) { statusElement.innerText = "Market Trend: Positive Absorption (Demand is increasing)"; statusElement.style.color = "#27ae60"; } else if (netAbsorption < 0) { statusElement.innerText = "Market Trend: Negative Absorption (Vacancy is increasing)"; statusElement.style.color = "#e74c3c"; } else { statusElement.innerText = "Market Trend: Neutral (Market stability)"; statusElement.style.color = "#f39c12"; } document.getElementById("resultsContainer").style.display = "block"; }

Understanding Net Absorption in Commercial Real Estate

In the world of commercial real estate (CRE), Net Absorption is one of the most critical metrics used to gauge the health of a specific market. It measures the change in physically occupied space over a specific period, typically a quarter or a year.

The Net Absorption Formula

The calculation is straightforward but provides profound insight into market demand:

Net Absorption = (Total Space Occupied at End) – (Total Space Occupied at Start)

What Do the Results Mean?

  • Positive Net Absorption: This occurs when more space was leased than vacated during the period. It signals a "Landlord's Market," where demand is strong, vacancy rates are likely falling, and rental prices may increase.
  • Negative Net Absorption: This occurs when more space was vacated than leased. This indicates a "Tenant's Market," where supply is outpacing demand, vacancy is rising, and landlords may offer more concessions or lower rents to attract occupants.

Practical Example

Imagine a downtown office market with a total inventory of 10,000,000 square feet. At the beginning of the year, 8,500,000 square feet are occupied. By the end of the year, after several companies move in and others downsize, 8,700,000 square feet are occupied.

  • Net Absorption: 8,700,000 – 8,500,000 = 200,000 sq ft.
  • Net Absorption Rate: (200,000 / 10,000,000) * 100 = 2%.

This positive 2% rate indicates a healthy growth trend for that specific office sector.

Why Investors Track This Metric

Developers use Net Absorption to decide if a market can support a new building. If absorption is consistently negative, building a new office tower would be risky. Conversely, institutional investors look for high positive absorption rates as a signal to acquire properties, as it suggests high future occupancy and potential rent growth.

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