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CRE Terms 101: What’s Absorption?

Absorption, infill, adaptive reuse – what does that mean?

You’ve heard it before, or maybe you already know from experience: investing in real estate builds wealth. And while diving into the world of commercial real estate investments may seem unachievable, there are ways to start small and build a portfolio over time. 

To get there, we want to help you build a foundation of knowledge. Here at Sterling CRE, we want to demystify the world of commercial real estate. 

  • Absorption, specifically Net Absorption, is all of the square footage that becomes occupied in a certain time frame versus all of the square footage that became vacant during the same timeframe.  It is a metric typically used to gauge demand in a market.
  • Adaptive reuse is the renovation of buildings for a new, different use.  You may see or hear this trendy term often related to repurposing urban areas for housing as opposed to brand new, ground-up development, but these run the gamut from renovation of historical properties to retrofits of big box retail buildings.
  • Infill is a CRE buzzword that describes a developable property within an urban or suburban area.  Infill developments have the advantage of preexisting public infrastructure, such as sewer and utilities.
  • Capital Improvements are defined as permanent or structural changes to the property  or improvements that increase the value or life of the property.  These occur outside normal expenses and should be accounted for in underwriting a property.  Also, Capital Improvements are different from minor repairs or routine maintenance.  This is important because the IRS considers capital improvements as a tax deductible item, whereas repairs are not.

That’s more useful terms to know when investing in commercial real estate. Follow Sterling CRE on Facebook and LinkedIn for more definitions coming soon. 

Contact Sterling CRE Advisor Nick Chaussee for more info on these terms.