Absorption
Absorption is the change in how much space is actually in use in a market over a period. It measures demand for premises: how many square metres of office, retail or logistics space have been taken into use, minus the space vacated. The term is used in market reports to describe whether an area is trending up or down, and together with vacancy and rent development it is one of the most important figures for understanding a rental market.
There is a distinction between gross and net absorption. Gross absorption is all new letting activity in the period, that is, the sum of all space that tenants have moved into. Net absorption deducts the space that was vacated or put back on the market, and shows the real change in let space. Positive net absorption means the market takes up more space than it releases, which over time pushes vacancy down and rents up. Negative net absorption means the opposite: more tenants move out than in, vacancy rises and rents fall.
Absorption must be seen in the context of new construction. A market can have strong net absorption and still see rising vacancy if more new space is completed than demand can take up. Investors and advisers therefore track absorption and completions in parallel: the balance between them decides whether the market tightens or becomes more tenant friendly. In the Oslo area, players such as Eiendom Norge and the large commercial property brokers publish quarterly absorption figures per submarket.
For an owner or investor, absorption is a leading indicator. Strong net absorption in a submarket signals falling relocation risk, rising net effective rent and potentially lower required yield, while sustained negative absorption is an early warning sign for commercial property in the area. Logistics property and office property are tracked most closely, because demand there swings most with the economic cycle.
From Placepoint's glossary: Absorption
More information: Eiendom Norge: Market reports, Akershus Eiendom: Market Report
English: Absorption (net absorption, take-up).
Frequently asked questions
What is absorption in the property market?
Absorption is the change in how much space is actually in use over a period, that is, space taken into use minus space vacated. It measures demand for premises and is used together with vacancy to describe a rental market.
What is the difference between gross and net absorption?
Gross absorption is all new letting activity in the period. Net absorption deducts space that was vacated and shows the real change in let space. The net figure is the one that tells you whether the market is tightening or loosening.
Can vacancy rise even with positive absorption?
Yes. If more new space is completed than the market takes up, vacancy can increase even with positive net absorption. That is why absorption and new construction are tracked in parallel.
Why is absorption important for investors?
It is a leading indicator. Strong net absorption signals falling relocation risk, rising net effective rent and potentially lower required yield. Sustained negative absorption is an early warning sign.