Market Analysis for Real Estate

Cover
Half Title
A note on the author
Title Page
Copyright Page
Dedication
Table of contents
Acknowledgments
Part A Introduction
	1 Market analysis in perspective
		Introduction
		Book premise, focus, and objectives
		Market analysis in perspective
			Focus and contribution
				General macroeconomic/metropolitan growth forces
				Macroeconomic forces that drive the demand for and supply of specific property types
				Location and project-specific factors
			Market analysis components
				Metropolitan growth analysis
					Geographic analysis
					Focus of the analysis
					The bottom-line
					Contribution
				Macro analysis of real estate markets
					Focus of the analysis
					Bottom-line outcome
					Contribution
				Micro (site-specific) analysis of development projects
					Unit of analysis
					Focus of the analysis
					Bottom-line outcome
					Contribution
			Market studies and their emphasis
				Residential
				Retail
				Office
				Industrial
			Market studies in general: evaluation criteria
		Book structure and content
			Part A: Introduction
			Part B: Metropolitan growth analysis
			Part C: Analyzing residential real estate markets
			Part D: Analyzing the market for retail space
			Part E: Office market analysis
			Part F: Industrial market analysis
		Notes
		References and additional readings
Part B Metropolitan growth analysis
	3 Metropolitan growth patterns
		Introduction
		Growth analysis in perspective
		Defining metropolitan growth
		Growth mechanisms and implications for real estate
			Demand-induced growth: causes and long-run consequences
				Growth stimuli
				Mechanism and long-run consequences
				Real estate market impacts
			Supply-induced growth: causes and long-run consequences
				Growth stimuli
				Mechanism and long-run consequences
				Real estate market impacts
				Education, technology, and metropolitan growth
		Chapter summary
		Questions
		Note
		References and additional readings
	4 Analyzing metropolitan economies
		Introduction
		Main analysis steps
			Identification of the spatial unit of analysis
			Analysis of basic growth indicators
			Analysis of population and income trends
			Analysis of sectoral employment, income, and industry structure trends
				Analyzing employment and income growth patterns by industry
					Construction
					Finance, Insurance, and Real Estate (FIRE)
					Manufacturing
					Services
					Wholesale Trade
					Retail Trade
					Government
					Transportation and Warehousing, Utilities, and Information (TWUI)
				Analyzing absolute and relative employment shares
					Location quotient: origins of the idea and definition
					Relative employment shares in the Los Angeles economy
					Shift-share analysis
			Synthesis: growth prospects
				Selected sources of information for historical data and forecasts
		Chapter summary
		Questions
		Project #1: Analyzing metropolitan growth patterns
			Data to be provided by instructor
			Main tasks
				Introduction
				Analyzing metropolitan growth patterns
				Growth prospects and real estate markets
		Note
		References and additional readings
Part C Analyzing residential real estate markets
	5 Residential real estate markets
		Introduction
		Overview of residential market analysis
		Basic housing market economics
			Housing demand: analysis elements
				Demand for a particular housing type
				Demand for tenure type
				Demand for quality/amenity levels
				Demand for particular location characteristics
				Households and demographic structures
				Income, prices, and affordability
				Inflation
				Expectations
			New housing supply
				New residential construction
					Short-term new construction
					Longer-term new construction
				The supply of resale homes
		Chapter summary
		Questions
		Notes
		References and additional readings
	6 Macroeconomic analysis of residential real estate markets: Accounting techniques
		Introduction
		Macroeconomic analysis framework
			Market area definition
				Define the primary market area by drawing a curve representing equal commuting time from the site
				Identify major employment nodes within the primary market area
				Establish the competitive market area
				Refine the definition of the competitive market area
				Adjust boundaries to coincide with census tract boundaries
			Time frame of the analysis
			Assessing residential market strength
				Accounting techniques: the aggregate approach
					Estimate new demand from household growth
					Estimate expected available supply of residential units
					Estimate the housing gap and perform sensitivity analysis
					Critique
				Accounting techniques: the disaggregate approach
					Basic methodological steps in estimating housing demand
					Who qualifies?
					Critique of the disaggregate approach
		Chapter summary
		Questions
		Project #2: Estimating effective residential demand using the accounting approach
			The case
				Development scenarios and price data
				Mortgage requirements and affordability measures in 2023
				Target demographic groups and preferences
					1. Forecasts for target demographic groups
					2. Headship rates, 2023
					3. Distribution of households by income, 2023
			Market area data
			4. Expected available supply within the competitive market area, 2023
			Questions
			What to turn in
		Notes
		References and additional readings
	7 Macroeconomic analysis of residential real estate markets: The basics of the econometric approach
		Introduction
		The basics of regression analysis
			Evaluating regression models
			Prediction
		Applications of regression models in market analysis
			Macro analysis of real estate markets
			Micro analysis of real estate projects
			A numerical example of a simple linear regression
			Multiple regression models
		Chapter summary
		Questions
		Notes
		References and additional readings
	8 Macroeconomic analysis of residential real estate markets: Applying the econometric approach
		Introduction
		Applying the econometric approach to the Dallas apartment market
			Step 1: Collect data on apartment demand, supply, rents, and their drivers
			Step 2: Set up/define a behavioral model
				Specifying the statistical equations
			Step 3: Estimate the model
				Rent equation
				Permit equation
			Step 4: Develop forecasts and perform sensitivity analysis
		Chapter summary
		Questions
		Project #3: Forecasting the Los Angeles apartment market
			The data
			Data analysis
		Notes
		References and additional readings
	9 Analyzing residential projects: A micro perspective
		Qualitative analysis of residential projects
			Site and location analysis
				The site and its immediate environment
				Neighborhood and community attributes
				Access and linkages
			Analysis of local market conditions
				Data sources
			Consumer targeting and refinement of product design
		Quantitative analysis of residential projects: estimating project rent and absorption rate
			Analyzing the competition: the competitive differentials technique
				Analysis steps
				Numerical example
					Identify competing residential projects
					Collect and tabulate information on the attributes of competing projects
					Evaluate competitive differentials through amenity index techniques
					Compute competitive market prices (or rents) for the project
				Critique
			Hedonic valuation techniques
				Analysis steps
				Applications
				Estimating project price or rent given its amenity package
				Determining and evaluating optimal project design
				Numerical example
				Critique of the hedonic valuation technique
			Project absorption and gross revenue analysis
				Numerical example of project absorption analysis
				Econometric estimation of project absorption
		Chapter summary
		Questions
		Project #4: On hedonic price models
			Analysis tasks/questions
		Notes
		References and additional readings
	10 Analysis of residential real estate markets: An example
		Introduction
		Residential development: an example
		The project and relevant market and financial data
			Time of entry
			Residential acreage and zoning
			Target markets
				Target group demographics (1998)
				Distribution of households across income groups (1998)
			Residential product design
				Hedonic price analysis
				Non-land development costs
				The design type choice problem
			Residential finance (permanent loan)
			Residential preferences
				Age Group 1
				Age Group 2
			Residential market demand, competing supply, and prices
				Effective demand
				Competing supply
				Real market price index
		Analysis
			Determining optimal design and densities
				Selecting the most profitable design type for each of the two target groups
				Determining the optimal density for each target group
				Determining how many units of each design type to include in the project
			Estimating project absorption and revenue schedules
				Estimate the nominal market price index
				Determine the schedule of nominal house prices for the two design types to be included in the project
				Forecast effective housing market demand
				Estimate project absorption schedule
				Estimate project revenue schedule
		Evaluating residential market studies
			Macroeconomic analysis of residential markets
			Micro, site-specific analysis of residential development projects
		Notes
Part D Analyzing the market for retail space
	11 Retail markets and retail market studies
		Introduction
		Idiosyncrasies of the market for retail space
			Idiosyncratic macroeconomic aspects
			Idiosyncratic microeconomic aspects
		Retail market fundamentals
			The demand for retail space
				Components of retail space demand
				Purchasing power
				Spending patterns
					The role of income and demographics
					Other factors affecting retail spending patterns
			The supply of retail space
		Retail market analysis objectives
		Overview: the three phases of a retail market study
			Phase I: Analyzing entry
			Phase II: Location analysis/evaluation
			Phase III: Project evaluation
		Chapter summary
		Questions
		Notes
		References and additional readings
	12 Analyzing the market for retail space
		Introduction
		Phase I: Assessing unrealized sales potential
			Definition/types of retail markets
			Analysis techniques
			Method 1: Estimating unrealized sales potential through accounting techniques
				Step 1: Define the spatial unit of analysis
				Step 2: Estimate the potential volume of sales, SE
				Step 3: Estimate the sales volume supported by existing establishments, S
				Step 4: Estimate the market’s unrealized sales potential
				Example of the application of the accounting technique
				Critique of the accounting technique
			Method 2: Estimating unrealized sales potential through econometric techniques
				Step 1: Define the spatial unit of analysis
				Step 2: Model and predict sales/capita
				Step 3: Estimate the sales volume supported by existing establishments, S
				Step 4: Estimate the market’s unrealized sales potential
				Example of the application of the econometric approach
				Critique of the econometric approach
			Strategic implications of the analysis of market potential
		Phase II: The spatial behavior of consumers
			Location selection
			Spatial demand analysis
				Consumer
				Macro-access
				Micro-access
				Micro-environment
			Supply analysis
			Preferred location traits across center typologies
		Phase III: Refining and evaluating the retail development scenario
			Stage 1: Refining the development scenario
			Stage 2: Retail trade area definition
				Non-stylized, multiple-criteria methodologies for defining trade areas
				Stylized methodologies for defining trade areas
			Stage 3: Competition analysis
				Identify and collect data on competing facilities
				Evaluate and rate the planned development against competing developments using the competitive differentials technique
				Analyze the links between development traits and performance
				Revise the development idea
			Stage 4: Shopping pattern analysis
			Stage 5: Evaluating the development plan
				Step 1: Estimating the development’s likely capture rate
					Huff’s probability model
					Advanced probability modeling: the MIT-Cambridge Systematics model
					Model applications
				Step 2: Estimating sales potential by line of trade
				Step 3: Estimating supportable square footage by line of trade
				Step 4: Estimating achievable retail space rents
					Accounting techniques for estimating retail space rents
					Estimating maximum non-anchor tenant rents
					Estimating the minimum anchor tenant rent
					Hedonic valuation techniques
					Forecasting retail space rents17
				Step 5: Assessing the development scenario
					Comparing alternative scenarios
		Chapter summary
		Questions
		Notes
		References and additional readings
	13 Analyzing the market for retail space: Synthesis and market studies
		Introduction
		Emphasis of retail market studies
			Regional and super-regional centers
			Community centers
			Neighborhood centers
			Strip centers
			Discount and warehouse stores
			Off-price centers
			Outlet centers
			Specialty centers
		Evaluating retail market studies
			Broader evaluation criteria
			Common flaws of retail market studies
				Improper definition of the market/trade area
				Inaccurate data on spendable income and retail sales
				Inappropriate assessment of supportable retail activity
				Naive assumptions regarding future changes
				Misinterpretation of “comparables”
				Poor analysis of the risks pertaining to store and tenant failure
				Use of very broad data sources
		Retail development: a simple example
			Project and market data
				Time of entry
				Retail GLA
				Tenant clusters and sources of demand
				Tenant data
				Residential-based demand and trade area households
				Job-based and visitor-based demand
				Retail rent index
			Analysis
		Questions
		References and additional readings
Part E Office market analysis
	14 The market for office space
		Introduction
		Office market idiosyncrasies and determinants of project success
			Office space demand and prospects
				Office-using sectors
				On net absorption and its determinants
					Office employment growth
					Space-per-worker requirements
					Office space rents
					Expectations
			The supply of office space
				Income-related factors
					Rents
					Vacancy rates
					Expectations
					Market volatility and risk
				Cost-related factors and availability of capital
					Cost factors
					Availability of capital
		Overview of office market analysis
			Analysis of office project viability from the market perspective
		Chapter summary
		Questions
		Notes
		References and additional readings
	15 Office market analysis: A macro perspective
		Introduction
		Analyzing office markets: a macro perspective
			What market variables should be analyzed?
				Office space demand
				New office supply
				Office market demand-supply imbalances
			Numerical example
		Assessing office market strength: overview of office market gap estimation
			Calculating new office space requirements, DS(t)
			Estimating expected net absorption of office space, AB(t)
				Simplistic view
				“Informed” view
					Demand-supply gap 1996
			Simple accounting techniques for forecasting office-using employment and office space demand
				Aggregate approaches: using office employment growth
				Disaggregate approaches: using industry-occupation matrices
				Example
					Employment sectors considered
					Office-using occupations considered
			Office supply analysis using accounting approaches
				Vacant stock
				Completions
				Critique
			Econometric forecasting of office markets
				Forecasting office space absorption, new construction, vacancies, and rents
				Alternative rental adjustment models
					Example
				Alternative 1: Traditional model with variable structural vacancy rate
					Example
				Alternative 2: The equilibrium or desired rent model
					Example
		Submarket analysis
			Types of office nodes
				Downtown district
				Uptown district
				Office parks
				Special nodes
				Shopping center office nodes
			How to analyze office submarkets
		Chapter summary
		Questions
		Project #5: Econometric forecasting of office markets
			The case
				The questions
			The report
			The data
				Absorption equation:
				Real rent equation:
				Completions equation:
		Notes
		References and additional readings
	16 Micro analysis of office markets
		Introduction
		Analyzing office locations
			Productive or firm amenities
			Worker/residential amenities
			Prestige and visibility
			Location constraints
			But, do office rents fully reflect location amenity differentials?
		Analyzing office projects: estimating achievable rents and absorption schedules
			Collection of data for competing office properties
				Identify comparable office properties
				Collect information on the identified comparables
					Lease terms and characteristics
					Space attributes
					Structure attributes
					Location attributes
			Data analysis
				Using the competitive differentials technique to assess project strength and achievable rental rates
				Critique
				Using hedonic methodologies to estimate achievable office lease rates
				Variables included in hedonic office rent models
			Usefulness of hedonic rent analysis
			Critique
				Developing office-project absorption and revenue schedules
					Project absorption (column [7])
					Hedonic lease rate (column [8])
					Gross rental revenue (column [9])
					Cumulative gross revenue 1998 (column [10])
		Chapter summary
		Questions
		Notes
		References and additional readings
	17 Office market analysis: Synthesis and market studies
		Introduction
		Example: multi-tenant office development
			The project
			Time of entry
			Structure typology
			Analysis of hedonic lease rates, 1996
			Market information
			Analysis
		Evaluating office market studies
			Macro analysis of office markets
			Micro, site-, and project-specific analysis of office projects
		Project #6: Evaluating an office development scenario
			What to turn in
			Micro market data
				Site and structure attributes
				Office lease rates: hedonic analysis results
			Macro market conditions
				Forecast of metropolitan office market fundamentals
				Space requirements per worker
				Office market absorption equation
		Note
		References and additional readings
Part F Industrial market analysis
	18 Industrial space market
		Introduction
		Industrial market idiosyncrasies
			Functional heterogeneity
			Large non-speculative component
			Industrial cycles parallel business, as opposed to real estate cycles
		The demand for industrial space
			Growth in industrial output or employment
			Shifts in the real after-tax cost of corporate capital
			Replacement demand
			Square feet per employee5
		The supply of industrial space
		Industrial market analysis: an overview
			Macroeconomic analysis of industrial markets
			Accounting approaches
			Econometric approaches
			Microeconomic site-specific analysis of industrial projects
		Macroeconomic analysis of industrial markets
			Estimating the industrial demand-supply gap through accounting techniques
			Accounting techniques for forecasting industrial space demand
				Method 1: Demand analysis for general-purpose industrial space
				Method 2: Best-fit industry analysis
					Step 1: Identification of best-fit industries
					Industry characteristics
					Location and area attributes
					A closer look at interurban industrial location
					Productive amenities
					Agglomeration economies
					Factor availability and costs
					Taxes
					Transportation costs
					Business environment
					Non-productive amenities
					Step 2: Evaluation of the area’s industrial development potential
			Econometric modeling of the industrial market
				Modeling investment in non-speculative industrial buildings
				Modeling the speculative industrial market
		Site-specific analysis of industrial projects
			Step 1: Evaluation of site attributes
				Site features
				Site access and linkages
				Traditional manufacturing (production) space
				Warehouse and distribution space
				Research and development space
				Community constraints
			Step 2: Identification of types of tenants most likely to be attracted to the site
			Step 3: Analysis of the competition
			Step 4: Estimation of project absorption schedule and achievable rents or land prices
		On industrial market studies: evaluation criteria
			Macro, non-site-specific analysis
			Site-specific analysis of development projects
		Chapter summary
		Questions
		Notes
		References and additional readings
Part G Data sources
	19 Data sources for real estate market analysis
		Introduction
		Sources for real estate market data
		Sources for economic and demographic data
		References
Index