What is meant by the term "absorption" in real estate?

Absorption in real estate refers to the rate at which available space, whether commercial or residential, is leased or sold over a specific period of time. This concept is crucial for understanding market dynamics, as it helps measure the effectiveness of real estate marketing strategies and provides insight into market demand versus supply.

The absorption rate is often analyzed in conjunction with inventory levels to assess how quickly properties are being bought or rented, indicating the health of the real estate market. For example, if a large number of properties are sold or leased within a short time frame, it suggests a strong demand, whereas a slow absorption rate may suggest an oversupply or less demand in the market.

This concept aids developers, investors, and real estate professionals in making informed decisions regarding their investments and strategies. By focusing on the rate of absorption, stakeholders can better predict future trends in property value and market activity.