Real Estate Market AnalysisSlide 2Slide 3Overview of Market Analysis ComponentsSlide 5Slide 6Slide 7Slide 8Step 1: Define the Product Property Productivity AnalysisSlide 10Slide 11Step 2: Define the Users Market DelineationStep 3: Forecast Demand FactorsStep 4: Inventory and Forecast Competitive SupplyStep 5: Analyze the Interaction of Supply and DemandMarginal Demand AnalysisStep 6: Forecast Subject CaptureMarket Analysis LevelsLevel A Market AnalysisSlide 20Slide 21Level B Market AnalysisSlide 23Slide 24Slide 25Slide 26Slide 27Slide 28Level C Market AnalysisSlide 30Slide 31Slide 32Level D Market AnalysisSummary Levels of Market AnalysisSlide 35Slide 36Slide 37Criteria for Selecting Appropriate Level of Market AnalysisSo That’s An Overview of Real Estate Market AnalysisReal Estate Market AnalysisBasic Principles, anOverview of the Process and Levels of StudyWayne Foss, DBA, MAI, CRE, FRICS Fullerton, CA USA Email: [email protected] Estate Market AnalysisStudies that Focus on the MarketAnalysis of Local Economic ConditionsStudy of the fundamental determinates of the demand for all real estate in the marketMarket AnalysisStudy of the demand for a particular property typeA site in search of a UseA Use in Search of a Site3Real Estate Market AnalysisMarketability AnalysisStudy of a specific development or property to assess its competitive positionStudies That Focus on Individual DecisionsFeasibility AnalysisEvaluates a specific project as to whether or not it is likely to be carried out successfullyInvestment AnalysisEvaluates a specific property as a potential investment. Investor specific.4Overview of Market Analysis ComponentsTwo Major Study (Question) Types1. A Site in Search of a Use2. A Use in Search of a Site5Overview of Market Analysis ComponentsThe Study Process1. What attributes does the subject property offer to the market?2. Who are the potential, typical users/most likely purchasers of the subject?Most Probable Buyer Analysis6Overview of Market Analysis Components3. Is the property use needed?Demand AnalysisPopulation  Households  Housing UnitsIncome  Effective Buying Power  Retail Sq. Ft.Jobs  % Use Office  Office Sq. Ft.Jobs  % Use Industrial  Industrial Sq. Ft.7Overview of Market Analysis Components4. What is the Competition?Supply Analysis5. Analysis comparing demand and supplyEquilibrium AnalysisHow much rent can be charges?Is the location competitive?Are the property attributes competitive?How much of the demand can be captured?8Overview of Market Analysis Components6. Subjects marketabilityCapture Analysis7. Does the subject make financial sense?Is it a good investment?What is its market value?Is the property’s value more than its cost?I.e.: is there any entrepreneurial reward for the risk?Feasibility Analysis and/or Highest and Best Use9Step 1: Define the ProductProperty Productivity AnalysisA. Physical AttributesB. Legal and Regulatory AttributesPrivatePublicC. Location AttributesIdentification of economic attributes – the association between land uses and their linkagesIdentification of the movement of demand in relation to the direction of urban growth10Step 1: Define the ProductProperty Productivity AnalysisAnalysis of Urban Growth StructurePattern, Direction and RateAnalysis of factors influencing urban growth structureNatural, Manufactured and PoliticalIdentification of competition and comparison of location advantages and disadvantages between competition and subject11Step 1: Define the ProductProperty Productivity AnalysisD. Market appeal Attributes:Identification of specific features such as design or amenities that appeal to market participants12Step 2: Define the UsersMarket DelineationA. Market area conceptsTime-distance conceptsArea over which equally desirable, substitute properties tend to compete with the subjectB. Geographic Market DelineationC. Identification of Characteristics of Most Probable User (consumer profile)13Step 3: Forecast Demand FactorsA. Major demand typesPopulation creates householdsIncome creates retail buying powerEmployment creates office and industrial usersB. Tastes and preferences: behavioral, motivational, and psychological factorsC. Demand segmentation14Step 4: Inventory and Forecast Competitive SupplyA. Existing stock of competitive propertiesB. Potential competitionProposed constructionProbable additional constructionC. Factors influencing completion of potential competitionLand availability and costsInterest RatesMaterial and labor costsEntrepreneurship15Step 5: Analyze the Interaction of Supply and DemandResidual Demand StudyA. Competitive environmentB. Residual Demand Concepts16Marginal Demand AnalysisCurrent plus 5 years plus 10 yearsSquare Feet Square Feet Square FeetEstimate of supportable retail space in primary and secondary trade areas adjusted for vacancy582,308 718,083 922,371Deduct existing competitive retail space 1,100,976 1,100,976 1,100,976Marginal demand (excess or shortfall) estimate(518,668) (382,893) (178,605)17Step 6: Forecast Subject CaptureA. Capture rate and absorption period for subject propertyB. Risk AnalysisC. Reconciliation of market analysis and conclusions18Market Analysis LevelsInferred Demand StudiesLevels A and BEmphasis is on knowledge and historical dataFundamental Demand StudiesLevels C and DEmphasis is on quantifiable data and forecasting19Level A Market AnalysisDraws on readily available regional and city data, a general area description provides the backdrop for the comparable property data used to represent market conditionsAnalyses are more descriptive than analyticalHistorically oriented rather than future orientedRent and comparable sales are relied upon20Level A Market AnalysisA. Property productivity analysisPhysical attributesLegal attributesLocation attributesB. Supply and demand analysisDemandSupply21Level A Market AnalysisC. Marketability/equilibrium analysis/highest and best use conclusionsFocuses on use conclusionsTiming based on analysts feel for the marketImproved PropertiesUse and timing for property useVacant land or land as though vacantUse – Usually uses permitted by current