WHEN WORRIED ABOUT SUPPLY GROWTH AND MARKET GLUT , DON ’ T FIRST FORGET TO CONSIDER EXISTING STOCK TAKEN OFF THE MARKET .
Contributed by DANIEL LESSER , LW HOSPITALITY ADVISORS , NEW YORK CITY
LY
Within the commercial real estate world , the term “ net absorption rate ” is a riveting metric for debt and equity investors as well as property and asset managers . However , in the lodging industry , it is not a term that is widely considered .
Net Absorption is the amount of occupied space at the end of a period less the amount of space occupied at the beginning of the same period . Net absorption accounts for space vacated as well as new additions ( i . e ., new construction ) over the applicable period . Net absorption is calculated by using the formula of total vacant square footage at the beginning of a time period plus square feet constructed ( or brought online ) during the period , less square feet demolished or otherwise removed during the period , less square feet vacant at the end of the time period . For example , if a market has 1 million square feet of space and 50,000 square feet are leased while 20,000 square feet are vacated during the period and there is no new construction or demolition of existing properties , then the net absorption rate would equal 3 % ( 50,000 SF leased less 20,000 vacated equals 30,000 SF net absorption divided by 1 million SF of total space ).
While new additions to hotel supply are routinely considered by many market participants , others neglect to factor in permanent hotel closures . A silver lining of most lodging sector downturns are the everlasting deletions of lodging facilities that are physically , and / or functionally , and / or economically obsolete assets that are no longer financially viable enterprises . Examples include properties with improvements that are converted to such uses as : housing including multifamily , student , affordable , workforce , for the homeless , and senior living . Additionally , properties situated in desirable locations with improvements that have reached the end of their useful life are often demolished to make way for new residential condominiums , office buildings , healthcare related facilities , and mixed-use developments that include retail and in many cases a lodging component .
As part of the response to the COVID-19 pandemic , the State of California launched Project Roomkey , a first of its kind partnership with the Federal
November / December 2021 hotelsmag . com 75