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 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.
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