What Is Absorption in Apartment Markets? Net Absorption and Lease-Up Pace
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Absorption is the number of apartment units leased in a market or building over a period, net of units vacated. For a market, net absorption is the change in occupied units; for a new or renovated building, it is the lease-up pace, such as 12 net leases a month. Compared with new supply, absorption tells you whether occupancy and rents are likely to rise or fall.
A market example (hypothetical)
| Topic | Start of year | End of year |
|---|---|---|
| Total units | 10,000 | 10,400 (400 new) |
| Occupied units | 9,300 | 9,450 |
| Occupancy | 93.0% | 90.9% |
Net absorption is 150 units, but 400 new units opened, so occupancy fell by about two points. That market is likely to see more concessions until absorption catches up.
A lease-up example (hypothetical)
A new 120-unit building leases 12 units a month, net. Reaching 95% (114 units) takes about 10 months, so the model should carry vacancy and concessions that long. See stabilized occupancy and lease-up and renovation pace and lease-up.
Where do you find absorption data?
Brokerage market reports, paid data services and public sources such as Census rental vacancy data. See free apartment market research sources and choosing an apartment market.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), and verifies that every investor is accredited before they sign, in both. Investors fund by wire into the deal's escrow account at Enterprise Bank & Trust. Sponsors pay a $1,500 setup fee (non-refundable) and a flat $5,000 a year administration fee; see pricing.
FAQ
What is a good absorption rate?
One that keeps pace with or beats new supply in the submarket.
Is negative absorption possible?
Yes: more units vacated than leased, which pushes occupancy down.
How is absorption used in underwriting?
To set lease-up time, vacancy and concessions until the building stabilizes.
Sources
- U.S. Census Bureau: Housing Vacancies and Homeownership
- U.S. Census Bureau: Survey of Market Absorption of New Multifamily Units
This article is general information, not legal, tax or investment advice. Talk to your own CPA and attorney about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.