Section 3 Market Analysis Flashcards
4 stages of a real estate cycle
expansion, contraction, recession & recovery
Expansion
demand & occupancy grow, rents exceed replacement costs, entrepreneurial incentive is high so construction increases
Contraction
demand grows slowly, new construction exceeds demand, occupancy is high but declining, profit declines
Recession
demand is stagnant or decreasing, rents decline, concessions, profit potential is low, new construction declines or halts
Recovery
demand and occupancy climb, rents stabilize, profit gains strength but no new construction
Market equilibrium
balance between supply & demand, markets move to equilibrium but balance seldom occurs for long
Feasibility rent
rent required to induce new construction
Equilibrium rent
the rent a property is expected to bring when a market is at equilibrium
Economic base analysis
a study that the determines an economy’s basic and non basic industries
Basic industry
exports goods & services (brings money in)
Non-basic industry
imports goods & services (sends money out)
Location quotient
determines if an industry is basic or not. Location quotient over 1 is basic
How do you calculate a location quotient?
job in area/same job in US divided by all jobs in area/all jobs in us ie: 107/1000 = 10.7% 30,000/1,000,000 =3%
10.7%/3% = 3.5 LQ (basic!)
Market segmentation
the process of identifying smaller portions of a larger market for both supply and demand
Linkage
the time distance relationship between a particular use and its supporting facilities.
Key linkages - single family
schools, commute times, shopping
Key linkages - multi family
employment nodes, transportation nodes, location conveniences
Key linkages - office
commute times, lodging, retail amenities (food, fitness)
Key linkages - industrial
truck routes, suppliers
Key linkages - retail
conveniences to residential districts, household income, demographics
Market study
macroeconomic analysis of a specific area or property type
Marketability study
microeconomic analysis of the marketability of a specific property or class of properties
Projection
inferred demand analysis - prediction that assumes the past will continue into the future
Forecast
fundamental demand analysis - prediction that considers change in supply & demand
Inferred Demand Analysis
a projection based on current market conditions and recent historical change (no pent up/artificial demand, one property type)
Fundamental Demand Analysis
considers past and expects changes in PIE population, income & employment
What are the main differences between inferred demand analysis and fundamental demand analysis?
inferred does not recognize significant change, fundamental does
how do you choose an appropriate market analysis
CSS - complexity, size and market stability
Level A market analysis
Inferred, simple, small property in a stable market, value now
Level B market anaysis
Inferred, (any one of the following) - large, complex, unstable market, timing now.
Level C market analysis
Fundamental - use w/ 2 or more - large, complex, unstable market, timing not now
4 ingredients needed for an actual market and which one isn’t needed for a potential market
Demand, Supply & Prices - Transactions too for an actual market.
6 step Process of Market Analysis
- Property productivity analysis, 2. Delineate the market area & CMA, 3. Predict demand, 4. Predict supply (current & Future) 5. Compute net/marginal demand 6. Predict subject’s capture (3-4=5)
Identify property productivity
step 1 - describe property - physical, legal & locational (PLL)
Delineate the market
step 2 - boundries (natural/man made & politcal), what’s needed, what’s changing, market conditions
Identify Market conditions
step 3 - interest rates, supply & demand changes, changes in PIE (population, income, employment)
Measured Demand
the amount of space a market needs at 100% occupancy
Frictional vacancy
allows orderly movement of tenants
What is supportable demand and how do you calculate it?
Measured demand plus an allowance for frictional vacancy. Measured demand /(1-frictional vacancy) Demand 600 and vacancy 5% (600/0.95 = 632)
What is supply analysis (step 4) and how do you calculate supply -
Supply includes existing supply, new construction, planned new supply and demo & conversions.
Excess supply - what is it and how do you calculate it?
Step 4 - If there is excess supply: existing supply less frictional vacancy =s current demand/occupancy. subtract from existing supply to get the excess supply
Supply to absorb - not enough supply
Step 4 - For a specific property! Existing supply less stabilized vacancy = current demand. Subtract from existing supply to get space to absorb.
Predict subject capture
step 5 - the % of marginal demand that a specific proeprty is expected to attract or lose. Pro Rata share method - subject size/competitive size
