demand
prospective users of a real estate project (buyers & renters) and their characteristics
supply
analyzing competition particularly important in setting prices and rents
most frequent consumers are
developers, but also government officials, investors & lenders
two sets of studies in market analysis
urban economic & market segmentation
urban economics
location, location, location
city growth drivers?
determinants of location of activities within a city
market segmentation
differences in preferences or needs among market subgroups.
"target market
challenge of market segmentation
-RE data tend to cover all segments not your project's specific target market.
-effective market research is often a matter of excluding the irrelevant
cycle of market research
1. create market defining story
-what is the product?
-who is the customer?
-where is the customer?
-what does customer care about?
-what is the competition?
2. collect data
-evaluate results
-research sufficient?
-yes = end
-no =
3. refine research
first analysis
object to identify range of critical parameters implied by data.
owner market: sales projections (quantities & prices)
rental market: occupancy level & growth, rent level & growth.
market parameters
key numbers that characterize current conditions & trend in the market
refining the research
range narrow enough to be useful?
what factors affect critical parameters the most
story approach
begins with proposed project & its market segments, then builds links to larger economy (bottom-up)
issue with story approach
unclear how developers or investors choose the proposed project
conventional approach
goes from nation, to the state, to the city, finally to the project (top-down), general to specific
3 examples of property market research
1. elysian forest - planned unit development
2. palm grove - proposed office building
3. plane vista - proposed apartment expansion
planned unit development (PUD) characteristics
-mixed density (single family, townhouse, apartments)
-smaller individual lots for single family
-common areas and recreation facilities
Elysian Forest
bold & big for University City
-first PUD
-900 units (several times the size of a typical development)
first analysis steps
1. estimate number & share of households in target market segment.
2. project total housing unit sales in target market segment.
3. estimate sales to the target market segment
actual outcome for Elysian Forest
-built 20 speculative units
-staffed a sophisticated & expensive sales center
-never sold one unit
-project went into foreclosure
-firm went into bankruptcy
summary: development was destined to fail b/c target market was a nontraditional segment that reli
palm grove - office complex
-proposed 2- 4 floor "glass blocks" each with 40,000 sq. ft. of space. in University City
-built on speculative basis = constructing for unknown buyers & tenants.
-parking was far away
-looking for general purpose office tenants with 25 or more employees
palm grove results
city of very small office firms & little prospect of finding enough tenants from a total of less than 10 to fill the buildings.
-only 1 of 2 buildings were built & it was more than half vacant.
-financial disaster, could have been predicted with examinati
plane vista - apartments
north of airport in Orlando. has 500 units & owners contemplating 400 more, really big gym.
success: b/c market research was conducted. occupancy projections assume demand growth is 150-300 units per year.
data sources in 3 examples
1. american community survey (census): case 1: Elysian Forest.
2. county business patterns (census): case 2: palm grove
3. current employment statistics (BLS): case 3: plane vista
american community survey (census)
primary source for household demographics (elysian forest)
county business patterns (census)
number of firms by size, industry, and location (palm grove)
current employment statistics (BLS)
employment by location an industry (plane vista)
points about real estate market cycles
-real estate sub-markets differ in cyclicality
- office demand follow business cycles, & is very cyclical
- apartment less so since households must live somewhere
-longer constrictor lead time means more cyclicality
-permits
permits
key indicator used to evaluate where a property is within the cycle
additional tools for real estate market research
-GIS, Psychographics, survey research
geographic information system (GIS)
computer software systems that enable one to "map" information with great flexibility & speed.
-made analysis of Plane Vista possible
-widely used in store location research
psychographics
market segmentation research seeks to relate product preferences to attitudes, interests, opinions, & values, and to demographics.
-used to date in retail real estate, but may also apply to housing.
survey research
-potentially powerful tool if used carefully
-stated preference vs. revealed preference
-risk: ending up with meaningless questions or a meaningless sample
key preventative tools: obtain review & advice from experiences survey researchers, pretest