When trying to measure the level of demand in a rental market, real estate professionals use absorption rates metrics. The absorption rate is used to measure real estate supply and demand because it determines how long it takes for units to rent in a certain real estate market. This is important to understand because when facing low or negative absorption markets, operators may have to reduce the rental price or offer concessions to attract a renter. When invested in high absorption markets, operators can increase the asking price without turning renters away.
The absorption rate is calculated by taking the total number of units rented in the market and dividing it by the total number of available units for lease. This number shows the rate at which all of the current properties on the market are being rented.