Net Absorption
Given the above formula it can be easily understood that net absorption can be negative if the occupied stock declines from the next period to the next, or can be positive if the occupied stock increases from the next period to the next. Note that the occupied stock in each period is considered as the stock that is physically occupied and is under a valid lease contract. A grey area in the measurement of occupied stock is sublease space, which is actually space under contract, but is being placed in the market as vacant for sub-leasing. Typically, this space is counted as occupied, but in severe downturns when firms are downsizing and there is significant amount of space in the market for subleasing, it is often counted when trying to determine the market vacancy rate. Net absorption should not be confused with Gross Absorption which simply refers to the cumulative amount of space covered by all the lease contracts that were signed over a particular period independently of the space that was vacated during that period, and which reduces the occupied stock. For this reason using simply the term absorption without qualifying it whether it refers to net or gross can be confusing.
Let's consider an apartment market with an occupied stock in this period (year, quarter, etc), OSt, equal to 200,000 units and an occupied stock of 220,000 units in the previous period, OSt-1. Then NABSt in this apartment market in this period, t, is negative and equal to: NABSt = 200,000 – 220,000 = -20,000
Now consider that the occupied stock in this period, OSt, is equal to 200,000 units with an occupied stock of 185,000 units in the previous period, OSt-1. Then NABSt in this apartment market in this period, t, is positive and equal to: NABSt = 200,000 – 185,000 = 15,000
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