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Question 1

List four main urban growth models

Answer 1

Socioecology growth models:
- concentric zone model
- sector (wedge) model
- multiple nuclei model
- axial (radial corridor) model

Question 2

Explain the concept of axial (radial corridor) model

Answer 2

The underlying approach of the axial model is accessibility of economic activities. In this model all major roads lead to the central business district, expansion of land use happens in the different corridors and low-income residential areas are between the corridors. The distance and time spent commuting to CBD determine the value of land. Furthermore, the land use is highly specialised and each centres serve a specific economic purpose.

Question 3

Describe the three levels of the market areas

Answer 3

Primary market area (PMA): where most consumers come from, 40-50%. This is because this area close to the project is most convenient, less transportation time to school, jobs, shops etc. Could be a neighborhood which the site is located in.

Secondary market area (SMA): 20% of consumers. Outside of PMA, and could be multiple neighborhoods in a city, however not in primary connection to the project. Consumers in SMA could still value the project for its ameneties, pricing etc, even though commuting could be longer.

Extended market area (EMA): Where the least potential consumers comes from. Could be from the outskirts of the city or even further away.

Question 4

Why is it important for a market analyst to make decisions based on the growth pattern of a region?

Answer 4

A significant part of demand for a project derives from relocation of households which can be predicted better if growth patterns are considered. It is important to know if and where households are going to move in the future to understand the level of demand. Moreover, the growth pattern influences the perceived value of land and properties and should therefore not be underestimated in a market analysis.

Question 5

Let the probability of demand for a residential project to be a function of distance. Draw a function that shows how the probability of demand in the PMA, SMA and EMA vary by distance to the project

Answer 5

Make a circle in the bottom, with two smaller circles inside, each slice representing each market area, with the project in the middle. Draw a line straight up from the project and the a line from the top of the line to the bottom at the edge of the outer circle. This line represents the probability of demand. With distance, the potential consumers decrease.

Question 6

Explain the difference between a fundamental and an inferred real estate market analysis.

Answer 6

They are mainly distinguished by their use of data. Inferred analysis uses macro-level data, fundamental analysis uses micro-level data.

While inferred analysis is trend-based on the historical data and selected comparables, fundamental analysis is based on quantifiable and specific subject data.

Further differences are the depth and detail of supply and demand analysis: inferred analysis infers demand from general economic base analysis implemented by others and infers supply by selected comparables. Fundamental analysis derives demand from an original economic base analysis and quantifies supply by looking at existing and forecasting planned supply.

Question 7

Use your function and show it is possible to define a concentric PMA, SMA.

Answer 7

For example, if there is 100 consmers, 65% are from PMA, 30% from SMA and 5% from EMA, you could draw lines, making the circles of the market areas. Bättre på bild om man ritar upp.

Question 8

Describe a method for determining demand based on the penetration rate calculation.

Answer 8

Penetration rate is defined by taking the actual sales divided by the number of potential households in the target group.

The metod uses penetration rates for reference projects and the average penetration for these projects are the penetration rate of the subject project.

To calculate the number of potential households, you need to calculate the qualifying households, which is housing cost divided byt the percentage of households willing to pay (35-45%)

Question 9

Give an example on how you can calculate penetration rate

Answer 9

Number of households within target group: 100
Number of actual sales: 60
60/100=0,6=penetration rate

Question 10

List the six steps of real estate market analysis and give a brief description of each.

Answer 10

1: Productivity analysis: what are the charectaristics of the property in questions and how does in compare to other competetive properties. Used to calculate the amenity index.
2: Market deliniation analysis: Where does demand come from and which properties compete for this demand?
3: Demand analysis: Target groups demands and needs. Who are the potential customers. Is there enough demand?
4: Supply analysis: Is there any competition? How much (saturated supply?), where, what costs.
5: Market condition analysis: How does supply and demand interact. How is the market doing, where are we in the market cycle.
6: Subject marketability analysis: Forecast future market capture and absorption. How well will potential development actually do?

Question 11

Describe the main criteria for determining the appropriate level of market analysis.

Answer 11

The level of market analysis depends on the level of uncertainty and is determined by three factors:

1. client’s needs -> what amount of infomation?
2. market conditions at the time of the analysis -> stable market (level A, B) or unbalanced market - overheated or downcycling - (level C minimum)
3. Complexity of the property -> small property with a lot of potential buyers and lower risk (level A, B) or larger property with few potential buyers and higher risk (level C or D)

Question 12

Give examples of problems that can be solved with the help of A, B, C, D level of analysis

Answer 12

Level A: descriptive analysis of real estate market in a specific region/city

Level B: descriptive analysis of a specific type of real estate in a specific area (still larger parts of a city), for example for retail properties

Level C: Object specific analysis including absorption rate and amenity index calculations (productivity analysis), giving detailed submarket analysis, for example shopping centre in Lidingö.

Level D: More subject specific analysis, for example for a specific subsegment -> jewellery stores in shopping centre in Lidingö

Question 13

Explain why we need to determine the market area for a given development?

Answer 13

The market area needs to be determined in order to identify sources of and demand and study competitive supply

Question 14

List at least three methods for market area delineation

Answer 14

1. Analogic developments
2. Lifestyle profiles
3. Applebaum spotting technique (retail)

Question 15

Describe the main idea of home moving pattern technique for market area delineation

Answer 15

The technique divides movements from other congregations into PMA, SMA and EMA. Considering the definition of each level of market area (highest / next highest / lowest percentage of customers for development project per sqm) and the distance of those congregations to the planned project the movements in recent years allows an estimate of the market areas for the planned project. The PMA would be congregations immediately near the project, the home area for the target group, and movements happen due to changes in interest (for example divorce or children moving out). The SMA surrounds the PMA and movements towards project are motivated for example in being closer to work and public/private services. Movements from EMA are motivated in finding new job opportunities or changes in life, such as retirement. Those movements can come from anywhere but the PMA and SMA. Thus, the EMA can be a region or a whole country.

Question 16

What is the amenity index?

Answer 16

A coefficient which tells how competetive/attracctive your project is compared to competetive supply of properties.

Question 17

Where do you get amenity index from?

Answer 17

You can get it from the productivity analysis where you score you project and its competitors in different factors/amenities. The amenity index can be calculated by dividing the projects score by the sum of the competitors scores divided by the number of competitors.

Question 18

Which mistakes should we avoid in the process of amenity index identification?

Answer 18

Only competetive and competing supply should be used, not for example comparing an office building and an apartment building, then it can be misleading.
Charectaristics is subjective, we can only compare charectaristics that are truly similar.

Question 19

What conclusion can be drawn if the amenity index of our project is 2,5?

Answer 19

2,5 seems too high. Probably too different subjects are compared, or charectaristics only benificial to our own project is used. Therefore it should be redone with different charectaristics measured or different competetive subjects.

Question 20

Describe the concept of target group from the point of view of demand estimation.

Answer 20

When doing a demand estimation, you are looking at factors such as population patterns, income and education level.
By doing a detailed demand estimation, you can get a informed basis of what the potential target group coculd be, which helps developers make good decisions.

Question 21

Describe the method of demand estimation using lifestyles.

Answer 21

People/households are divided into different groups, depending on their lifestyles, which depend on interests, income, family constellations, education level, age etc.
By using the mosaicc method, you can take this into account by looking at different target groups and the potential demand that they can bring.
Procedure:
– Point on the map the subject ́s location
– Find the households over some area
– Add a layer of LifeStyle Profiles on this area

Question 22

Define productivity analysis. What is the procedure of a productivity analysis?

Answer 22

Productivity analysis is an analysis to compare attractiveness of the subject property compared to similar subjects. You list attributes that are physical, locational and legal. These attributes are rated in a grid from inferior to superior compared to a neutral property. How well each attribute gives a different score. The final score is determined by summing the total score, and can then be used to calculate the amenity index (if the attributes are suitable for the compared projects, and the competition is similar to the project in question).

Question 23

The concentric zone model is a growth model that does not allow different city centers

Answer 23

True

Question 24

The concentric zone model is not a modification of the multiple nuclei model

Answer 24

True

Question 25

An amenity index can only include two projects

Answer 25

False

Question 26

Leakage means that competing supply is restricted to two projects only

Answer 26

False

Question 27

The market capture rate is used to adjust demand

Answer 27

True

Question 28

A secondary market area is always loccated in direct connection to a primary market area

Answer 28

False

Question 29

A PMA that is sparsely populated is preferred by developers compared to the opposite.

Answer 29

False

Question 30

The EMA does not include the SMA

Answer 30

True

Question 31

The likelyhood of finding potential buyers decrease by distance

Answer 31

True

Question 32

Sometimes we can find several PMA if the developer has two or more target groups

Answer 32

True

Question 33

Highest and best use is a conccept that is developed for residential development

Answer 33

False

Question 34

Rent theorists established the concept of highest and best use in the early 1800s

Answer 34

False

Question 35

Productivity analysis is not a cornerstone in highest and best use

Answer 35

False

Question 36

Absorption is a measure of succcess

Answer 36

True

Question 37

Highest and best use is not in focus in a new residential project

Answer 37

False

Question 38

Demand analysis include sources from supply analysis

Answer 38

False

Question 39

Macroeconomic factors such as GDP are not included in a foreccast of demand.

Answer 39

False

Question 40

Penetration rate does not include planned units

Answer 40

False

Question 41

1000 competing units in SMA is critical for absorption of your project in PMA

Answer 41

False

Question 42

Absorption can be best calculated by using GAP analysis

Answer 42

False

Question 43

The concetric zone model is a modification of the sector wedge model

Answer 43

False

Question 44

An amenity index can only include three projects

Answer 44

False

Question 45

Leakage means that competing supply is restricted

Answer 45

True

Question 46

The market capture rate is used to adjust competing supply

Answer 46

False

Question 47

Productivity analysis

Question 48

What kind of calculations has to be done to convert total demand in the primary market area to the demand of a specific residential project.

Answer 48

Calculate how many have a qualified income from the project. however you also need to calculate how many find the project attractive.

Question 49

Explain differences and similarities between level B and level D market analysis

Answer 49

B-level analysis is the second most basic analysis and is an inferred analysis. The D-level analysis is the most detailed analysis level and is a fundamental analysis. The B-level uses secondary data, historical data, and is on a city level. It makes descriptions and simple analyses based on accessible information. It gathers demographic data. The D-level is much more complex. It uses analyses from the A, B and C-level, produces primary data and looks at subject specific details. For example if it is a retail product it does not only look at the subject itself, but what it will sell etc. At this level it also makes own forecasts and calculations e.g. absorption. The main differences are therefore the depth of analysis and the use of secondary and primary data while B-level provides a good general understanding of the market, the D-level goes further into detail.

Question 50

List and briefly describe the criteria for determining the appropriate level of market analysis. Give some examples to enhance your description.

Answer 50

A-level: Non-complex, small in size, present tense

Using a D-analysis when it’s not needed unresourceful and not helpful. Therefore it’s important to investigate what level of analysis Is needed for understanding the specific development.

For a small-sized, non-complex development in the current time, an A-level analysis is enough to understand the general market conditions. If it becomes clear already in this side of the analysis that the development would be unsuccessful, this saves the developer a lot of time and resources (not having to investigate further). This level could therefore be good as a first check.

The more complex or large the project becomes, and the longer the time frame is, the more detailed the analysis has to be.

The A-level could also be good for single homes where the buyer wants to build directly. But if it’s more complex, like a multi-family residency, more analyses must be done. This also since the building time is longer, therefore it’s important to know that there is also demand for the apartments in the future.

Question 51

Describe the main idea of Reilly’s gravity technique to define the market area for retail centres

Answer 51

The idea is based on the gravity theory that larger objects has more gravity. Therefore the larger the size of the retail centre, the further customers are willing to drive. This affects the market area of the retail centre.

This can be calculated as following:
Breaking point = Driving time / (sqrt(size of A / size of B))

Question 52

Explain the concept of market absorption

Answer 52

Market absorption is the main outcome of a REMA-model analysis and is determined by the absorption rate. It gives an estimate of potential demand by expressing how many units that will be sold in a market in at a particular time

Question 53

Explain the difference between total demand and potential demand

Answer 53

The total demand is calculated from demand from relocation and population growth. It doesn’t take the target group, its preferences and affordability into account (their opinions and income). To calculate the potential demand the households that are economically qualified and interested in the project are to be considered in the calculations, first by calculating effective demand, then by adjusting the market share with the amenity index, which shows the attractiveness for the target group.

Question 54

Explain the idea of qualified income from the point of view of a developer who is in search for potential buyers

Answer 54

The qualified income narrows down the potential target group for the developers’ project. Staring with the proposed housing costs, the necessary disposable income to afford the housing is calculated (assuming 25-30% of disposable income is spent on housing) and a range of income determines economically qualified households with the qualified income for this project.

Question 55

a) Explain the concept of concentric zone model for urban growth.

b) Name its strong and weak sides.

c) Why is it important for a market analyst to decide on the growth pattern of a region?

Answer 55

a) The concentric zone model assumes that urban growth happens outwards. For example, if zone 1 grows, all other zones are affected and pushed outwards. But if zone 3 grows only zone 4 and 5 are affected and zone 1 and 2 stay the same. According to this model the different zones represent:
1) CBD = Central business district
2) Commuter zone
3) Residential zone of workers
4) High-income residential zone
5) Commuter/rural zone
This is based on the car-commuting zone, where people with high income want to live in bigger hoses, closer to open landscapes.

b) Positive:
The model explains well how many American cities have grown following an urban sprawl. People with low income have to live close to work, and are separated from higher incomers. Similarly, American cities have grown outward when households with medium-high and high income have moved outside the city centre.

Negative:
This model doesn’t take topography and commuting paths into account. A city grows more organically, and not necessarily equal at all places. Also, when some areas grow, they necessarily don’t push away others. In real examples, growth can happen inwards, for example in the cases of gentrification when richer areas “take over” less rich areas. While the model explain growth of a city, it doesn’t take the complexity of urban growth into account.

c) It’s important to understand growth patterns to successfully decide where to develop. Otherwise, the developer risk developing in unattractive areas or in areas with low demand. Knowing where growth can take place, the developer can be part of increased profits, as areas that become more popular increase in value. In that way, the developer can buy cheaper land sell it to a higher prices or collect higher rents.

Question 56

What is tangible and intangible property

Answer 56

Tangible property: physical things succh as buildings
Intangible property: financial cclaims, patents, contractual rights.

Question 57

Define real estate

Answer 57

The land and its permanent improvements

Question 58

What does the bundle of rights mean when you talk about real estate?

Answer 58

A bundle of intangible rights associated with the ownership of the site and its improvements, for example right of possession, control, enjoyment, exclusion.

Question 59

What are the two major dimensions of real estate market segmentation?

Answer 59

Topographically based real estate submarket: pre existing geographical/political boundaries, socio-economic or neighborhood charectaristics.
Quality based submarket: strucutral ccharectaristisc, rates of appreciation in house prices.

Question 60

What are the three markets in the real estate market?

Answer 60

Space market: physical locations
Asset market: ownership of real estate assets rather than space. Recieve future cash flows from tenants.
Capital markets: long term assets, includes stocks and bonds aswell as real estate.

Question 61

Define market analysis

Answer 61

Market analysis is the study of the supply and demand in a specific area for a specific property type at a specific time.

Question 62

Define demand and supply

Answer 62

Demand: describes the quantity of goods a consumer is willing and able to purchase at various prices at a given time.
Supply: the total amount of specific goods that is available to consumers at a certain price and time.

Question 63

How do you calculate fair market share and capture rate

Answer 63

Fair market share= own supply/(own supply + competetive supply)
Market capture= fair market share* amenity index

Question 64

What is the absorption rate

Answer 64

An indicator to determine how many units are expected to be sold in a market at a particular time
Could also be used to figure out how long it would take to sell the supplied units on the market. Used to understand market conditions,

Question 65

What factors influence a property’s income earning capacity?

Answer 65

General macroeconomic and urban growth forces
Macroeconomic forces that drive demand/supply of specific property types
Location and projecct specific charectaristicsc that may contribute to deviations.

Question 66

Name some general macroeconomic growth forces

Answer 66

changes in exchange rates
technological achievements
Global competition

Question 67

Name Macroeconomic forces specific to residential, officec, industrial and new construction.

Answer 67

Residential: population growth/migration
Office: employment trends in office using sectors
Industrial: manufacturing employment
New construction: land, material and labour costs

Question 68

What affects demand?

Answer 68

Quality and amenities provided by the project
Its immediate location
Consumer preferences and ability to pay

Question 69

What affects supply?

Answer 69

Local zoning constraints
Spatial distribution of existing and new comparable properties.

Question 70

Describe what we analyse and the indicators we get by doing a urban growth analysis.

Answer 70

We analyse the urban area (economic market) of the project.
We get several indicators succh as:
Urban area in the years ahead
The pattern of growth
Growth in wealth
The set of opportunities these presents for real estate developers to invest in.

Question 71

Name three main questions the market study needs to answer.

Answer 71

When to build?

What to build?

For whom to build?

Question 72

What is the difference between a marketability study and a market study?

Answer 72

A market study involves the overall market, while marketability is specific to one property

Question 73

What is market value?

Answer 73

The estimated amount for which a property should be exchanged on the day of valuation between a seller and a buyer.

Question 74

Name some weaknesses of the market analysis to avoid

Answer 74

Overestimating population growth and its effect on demand
Overuse of macro data
Overly positive analysis of the subject and its location
Failure to show a range etc.

Question 75

What is productivity analysis?

Answer 75

Productivity analysis is an analysis of the capacity of a property to house economic activities, supply services, and provide amenities to meet human needs. The analysis is a concept that focus on the characteristics of a property in order to establish its competitive position in the market.

Question 76

What are the components of a productivity analysis?

Answer 76

• Site and building improvements (physical attributes)
• Legal attributes
• Locational attributes and urban growth (locational analysis)

Question 77

Give examples of urban patterns

Answer 77

• Location of a city
• Size of a city
• Distance between cities

Question 78

What are the causes of the real estate cycle?

Answer 78

Dynamic supply and demand in the market
Inelastic real estate supply
Speculative investment or oversupply
Assymetric information on the market
Government intervention

Question 79

What are the implications of the real estate cycle on the real estate market analysis

Answer 79

Dynamic market, moving by a certain pattern, but also high uncertainty

Question 80

Name and describe briefly some macroeconomic determinants for demand

Answer 80

Economic: recessions, growth or uncertainty. Has impact on job market and spending
Employment and income level: strong correlation with GDP and eachother. Demand will increase when employment rate increases
Population and demographics: size, age, education etc.
Monetary and financial market: exchange rates (foreign investors?). Interest rates, negative impact.
Goverment policies and regulations: affects decisions.
Market psychology: personal preferences and expectations

Question 81

Name some macroeconomic determinants for supply

Answer 81

Technology: increases when there is better technology
Construction costs: depends on direct costs such as materials and labor aswell as indirect such as financing, insurance, interest rates.
Goverment policies and regulations: land regulations, subsidizes, rental control etc.
Market speculation for investment

Question 82

How do you classify office buildings?

Answer 82

No formal standard. Vary, but for example class A,B and C, where A are rather new and professionally managed in a good location with good tenants, while class B and C are inferior and older.

Question 83

Define the following:
Gross building area
Rentable area
Usable area
Efficiency ratio

Answer 83

Gross building area: total floor area of a building, excluding unenclosed area, measured from the exterior of the walls.
Rentable area: finished inside floor area without non-permanent walls.
Usable area: actual usable area
Efficiency ratio: ratio between rentable and gross area.

Question 84

Where can office supply come from?

Answer 84

Existing offices: vacant, exiting tenants
New construction
Converting from other property

Question 85

Tell a bit about Lease terms in office

Answer 85

Usually 2-3 years, larger have longer leases. Usually standard form agreement with an option to renow. No sub-letting usually allowed. Annual rent reviews unless fixed.

Question 86

Define:
Costs rent
Adjustments rent

Answer 86

Costs rent: only covers occupying the space, no ac, power etc are included.
Adjustments rent: fixed during the first 2-3 years, however management and ac can be changed.

Question 87

What do you need to look at when you are doing a regional analysis for a retail market

Answer 87

Local income: wage level, unemployment, population
Consumer spending
Consumer confidence, shoppings habits (social and culture factors)
Sources of customers
Trade area (market area)
Site analysis: traffic flow, accessability, layout

Question 88

Define market GAP

Answer 88

Market gap = supply - demand
Supply includes existing supply, under construction and planned supply
Demand is potential buyers

Question 89

What is absorption and how do you calculate it?

Answer 89

Absorption provides how many units ccan be sold in a specific period.
Absorption=demand*market capture rate

Question 90

Give examples of urban structures

Answer 90

• Social features of land use in community
• Physical features of land use in community
• Economic features of land uses in a community

Question 91

Name the three urban patterns formation theories

Answer 91

• The hierarchal pattern (central place theory, regular intervals like a honeycomb, small city sale the goods and services surroundings)
• The linear pattern (cities are located along a transportation route and transfer goods, cities at there ends of the transportation line are larger)
• The cluster pattern (cites develop in clusters where special resources exist)

Question 92

Name two urban structure models

Answer 92

• Social ecology models (concentric zone model, sector (wedge) model, multiple nuclei model, axial (radial corridor) model
• Rent theory models (focus on the trade-off between rent and transportation costs, or location and accessibility

Question 93

State the purpose of market delineation

Answer 93

• Where demand comes from
• Which properties compete for this demand

Question 94

What is market area?

Answer 94

The geographic region from which a majority of demand comes and the majority of competition is located.

Question 95

How is PMA defined?

Answer 95

• PMA is an area with the highest percentage of customer for development project per sqkm (40-50%). PMA is an area located immediately near the planned project. PMA is geographically surrounded by SMA (secondary market areas). PMA is also defined as the home area for households.

Question 96

How is SMA defined?

Answer 96

• As the secondary market area
• The area with the next highest percentage for development project
• SMA surrounds PMA
• Reasons to move to another area from SMA:
• To live closer to new workplace
• To live closer to public or private service
• Change in interest

Question 97

Reasons to move to another area from EMA?

Answer 97

• New work opportunities
• Retirement
• Marriage/divorce
• Others

EMA surrounds PMA

Question 98

What are the general techniques when defining the market area?

Answer 98

• Delineation of the market area in relation to the location of customers, potential tenants, user buyers
• Delineation of the market area by the location of substitute properties
• Delineation of the market area based on analogues

Question 99

Name specific techniques for defining the market area.

Answer 99

For retail:
- Reilly’s law/Reilly’s gravity technique

• The customer spotting technique (Applebaum spotting technique)
• The Nelson technique

For residential:
- Home-moving patterns

• Lifestyle profiles

For offices:
- Offices projects have no narrow, geographically defined market area. Analysis needs to study entire metropolitan area
- Key characteristics:

• CBD or suburban?
• Single tenant or multi tenant occupancy?
• Specific location (office node)
• Class of offices (A, B, C)