Absorption Rate
The rate at which available space is leased in a market over a specific period, indicating demand strength and market health.
Definition
Absorption rate measures how quickly vacant space gets leased in a given market, typically expressed as square feet per month or quarter. Positive absorption means more space was leased than vacated—a sign of healthy demand. Negative absorption indicates more space became vacant than was leased—a warning sign of softening demand. For small bay industrial, absorption data helps developers time new projects, helps landlords set realistic lease-up expectations, and helps investors assess market risk. Strong absorption relative to available supply supports rent growth; weak absorption pressures landlords to offer concessions. Absorption is often tracked alongside vacancy rate and new construction deliveries to paint a complete market picture.
Formula
Net Absorption = Space Leased - Space Vacated (over a period)Example
A metro area's small bay industrial market shows 450,000 SF of positive net absorption over the past 12 months against 2.1 million SF of total inventory. This 21% absorption rate signals strong demand. A developer uses this data to justify breaking ground on a new 60,000 SF project.