Absorption ScheduleThe absorption schedule is required for the estimation of the cash flows of a development project or a partially or fully vacant rental property in order to assess project feasibility or investment feasibility, as well as in order to support requests for financing. The development of a realistic absorption schedule over a time horizon requires thorough analysis of the demand sources and their prospects, as well as the competition (existing and planned) that the particular property is expected to face in the local market over the period of analysis. Demand and supply analysis differs by property type, as different factors affect demand and supply movements for offices, retail, residential and industrial in the local market. Estimating specific project absorption is not an easy task and various techniques can be used to this effect. The analyst needs to take into account both current and predicted demand trends and project competitive share in the local market. Usually, the analyst will predict the absorption rate and translate it that into the respective amount of space or number of units for the project, depending on the type of property considered. Absorption schedule projections can help asses debt and equity requirements for the project. |
