Net Absorption
Net absorption is the net change in occupied space in a defined market over a stated period: space taken into occupancy minus space given back. Leasing activity records signed commitments, including preleases in buildings still under construction, so it can run well ahead of absorption. The gap between the two is the gap between space promised and space actually occupied, and every published figure depends on the provider’s inventory and timing rules.
Commitments versus occupancy: where the two series separate
Leasing activity counts signed deals. Absorption counts the change in occupied space that follows. A lease can be executed years before the tenant takes possession, and the commitment shows up in leasing activity on signing.
Leasing activity also includes preleasing in buildings that are under construction, planned or under renovation. Those square feet have no occupant yet, so they cannot lift occupied space in the signing period.
The practical result is a timing lag. A quarter with heavy preleasing can post strong leasing volume and flat absorption. The absorption shows up in the periods when tenants move in, net of any space they vacate in the same market at the same time.
“Leasing activity also includes any preleasing activity in buildings that are under construction, planned or under renovation.”
Why the net figure hides gross moves
The formula is ending occupied space minus starting occupied space. Move-ins add to it. Move-outs, lease expirations that end in vacancy and space returned to the landlord subtract from it.
Because the result is a net, a market can post positive absorption while many tenants leave, and negative absorption while many tenants arrive. The headline number alone cannot say how much churn sat underneath it.
Inventory is the second moving part. Buildings enter the count on delivery and leave it on demolition or a change of use, and each provider draws its own line around competitive inventory. Two totals for the same metro can differ because the denominators differ, even when both providers measured faithfully.
Single-period readings from industrial and office
In an annual industrial series, U.S. net absorption totaled 170.8 million square feet, the lowest annual rate in more than a decade. That is a statement about one period in one sector. It says nothing about whether the space leased in that period was occupied in the same period.
Office offers a useful pairing of absorption and vacancy. In one quarter of one office series, vacancy fell 20 basis points to 16.7 percent on positive absorption of 29 million square feet. In a different quarter from a different provider, vacancy also improved 20 basis points, to 16.6 percent, on net absorption of 18.7 million square feet, even though vacancy for the full year in that series was up 170 basis points.
The second reading shows why a single quarter cannot stand in for a year. Vacancy is a share of inventory, absorption is a space total, and the two are reported over different windows by different sources.
Preleasing at scale sits ahead of all of this. A Canadian office snapshot counted 28 buildings under construction, totaling 4.9 million square feet, with 62.3 percent preleased. That committed space belongs to leasing activity today and reaches absorption only as tenants occupy it.
Absorption as a demand reading against new supply
Absorption is the demand side of the vacancy equation, and supply is the other side. Vacant space falls when absorption outpaces deliveries and rises when deliveries outpace absorption, while the vacancy rate also depends on changes in total inventory.
In recoveries that follow periods of excess construction, demand-side factors such as employment growth and economic diversification appear to dominate market behavior. Reading absorption alongside the local job base therefore says more than reading it alone.
Absorption also depends on what was available to absorb. A market with little vacant space can show weak absorption because there was little to occupy, and the weakness then says more about supply than demand.
Worked example: a 2,500,000 square foot office market, preleases signed versus space occupied
All figures are hypothetical and illustrate the mechanics only. A defined market has 2,500,000 square feet of inventory, with 2,200,000 occupied at the start of the period. Starting vacant space is 2,500,000 minus 2,200,000, or 300,000 square feet, and starting vacancy is 300,000 divided by 2,500,000, or 12 percent. No buildings are delivered or removed during the period, so inventory stays fixed. In both cases tenants also sign 150,000 square feet of preleases in a building still under construction.
Base case: tenants move into 90,000 square feet of existing space and vacate 40,000. Net absorption is 90,000 minus 40,000, or 50,000 square feet. Ending occupied space is 2,200,000 plus 50,000, or 2,250,000. Ending vacant space is 2,500,000 minus 2,250,000, or 250,000, so vacancy is 250,000 divided by 2,500,000, or 10 percent. Vacancy fell 2 percentage points, from 12 to 10.
Stressed case: the same 150,000 square feet of preleases is signed, but tenants move into only 45,000 square feet and vacate 70,000. Net absorption is 45,000 minus 70,000, or negative 25,000 square feet. Ending occupied space is 2,200,000 plus negative 25,000, or 2,175,000. Ending vacant space is 2,500,000 minus 2,175,000, or 325,000, so vacancy is 325,000 divided by 2,500,000, or 13 percent. Vacancy rose 1 percentage point, from 12 to 13.
Leasing activity reads 150,000 square feet in both cases, yet net absorption is positive in one and negative in the other. Same inventory, same starting occupancy and same signed volume produce opposite absorption, because the move-in and move-out figures differ.
Common mistakes when reading absorption figures
Booking a signed prelease as absorption confuses a commitment with occupied space. In the example, the 150,000 square feet signed adds nothing to ending occupancy of 2,250,000 until tenants take possession.
Reading gross move-ins as net absorption drops the space vacated. In the base case, 90,000 square feet of move-ins nets to 50,000 once 40,000 square feet of move-outs are deducted, and the gross figure overstates the change by 40,000.
Comparing totals across providers without matching inventory definitions can manufacture a trend. New deliveries and demolitions change the competitive set, and each provider draws that set differently. Published market data has also drawn long-standing criticism for uneven quality and a need for standardized collection.
Treating a vacancy change as the absorption figure merges a rate with a space total. In the example, vacancy moved 2 points in the base case on 50,000 square feet of absorption, and the same absorption in a larger inventory would move the rate less.
Extrapolating one quarter to a year overlooks that the quarterly and annual readings can point in different directions, as the office series with a quarterly improvement and an annual increase in vacancy shows.
Questions that test whether two absorption figures are comparable
Does each figure measure occupied space, or does one count signed commitments? Preleases in buildings not yet delivered can sit in leasing activity long before they reach absorption.
Do both figures share the same start and end of period? A move-in just outside the window shifts the measured net change into the next period.
Do both cover the same geography and property type? The market boundary decides which occupancy changes are counted.
Are the inventory definitions aligned? Buildings delivered, removed or converted alter the competitive set, and providers draw that set differently.
Is the figure gross move-ins or the net after move-outs? Only the net matches the definition of net absorption.
Is a vacancy rate being set beside a space total? The two describe different quantities and can move by different amounts in the same period.
How much of the signed volume is preleasing in buildings still under construction? That share is committed but unoccupied, so it will register as absorption only after delivery and move-in.