181 terms

Real Estate Market and Analysis

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The ultimate purpose of strategic analysis in general and an office market analysis in particular is to?
determine whether a proposed use at a particular site will meet the objectives of the owner, developer, investor, or lessee
CCIM Strategic Analysis Model includes the study of?
1. Market
2. Location/site
3. Political and legal
4. Financial Situation
Market and Competitive Analysis
1. Supply and demand (gap analysis)
2. Economic Base Analysis
3. Shift-share analysis
4. Real estate cycle analysis
Location and site analysis
- Site-level study of all the aspects of the property and its location

- Statistical analysis of a property can only you tell you only so much. The operating environment of the property will dictate its highest and best use.
Location and site analyses are related but distinct. This relationship can be stated in two ways:
- each site has its own unique location
- many sites exist within a general location
What must be considered when doing location and site analysis?
- client's objectives
- general market's economic conditions
- determined if gaps exist
A political and legal analysis considers the known relevant issues that impact the owner/investor's use of a subject property. It considers the following:
- local communities regulations such as the zoning ordinances, subdivision, regulations, construction codes, and land use restrictions
- Environmental protection legislation may affect the property
- Non possession rights such as easements and restrictive covenants
Note:

The provision of public services by the local government such as sewer and water services, traffic management techniques, and road infrastructure can affect the use of the site.

The amount of property taxation and special assessments for off-site improvements also affect the site and its use
Note
When the market and competitive, location and site, political and legal, and financial analyses have been performed, the information from these analyses is integrated and evaluated in the?
Strategic Analysis
The end result of this strategic analysis is a?
"go or no go" decision about the use on the property and/or the property itself and/or the market in which the property would compete.

- all four analysis must prove feasibility for a property
The office market area for the subject property consists of?
the office node or district in which the subject property is located
The office trade area is a subset of the office market area. The office trade area consists of?
the adjacent direct competitors and those in close proximity.
If the subject property is in the eastern portion of the office node (the office market area), the comparable properties on the east side have a ________ effect on the subject property than the comparable properties on the western portion of the office node.
greater
Market and Competitive Analysis - Office Properties

The delineation of the office market area depends on?
The supply side information
Market and Competitive Analysis - Office Properties

The office market area for the subject property consists of?
The office node or district in which the subject property is located
The office node is the center of econoic activity meaning?
it is at the center of the Central Business District (CBD) or the center of a secondary Local Economic Area (LEA)
Market and Competitive Analysis - Office Properties

Buildings in other office nodes can also be?
Competitiors
Market and Competitive Analysis - Office Properties

Buildings in other office nodes can also be competitors although they are _____________ to those in the same node
secondary competitors
Market and Competitive Analysis - Office Properties

The office trade area is a subset of?
The office market area
Market and Competitive Analysis - Office Properties

The office trade area consists of?
Adjacent competitors or those in close proximity
A key variable in office demand analysis is the portion of the labor force that?
works in office space
A key variable for office space demand is the level of?
employment
If you are looking at office space demand based on employment and your analysis is for an entire metropolitan area what two metrics will give the same results?
Employment by residence and employment by job site
If you are looking at office space demand based on employment and your analysis is for an office node, then use?
job site employment
Two general formats for estimating office demand?
- Total demand for existing fross office space

- Demand for additional office space
Total demand for existing gross office space estimates
all existing office in the LEA measured on rentable square feet (rsf) or gross building area (GBA)
Occupied GBA =
Total GBA - Vacant Space
GBA =
rental area + common area
Demand for additional office space is?
total demand for new space
Net demand for new office space =
Total demand - current vacant space
Developers and Investors typically require office space demand studies that focus on
the "additional rentable office space" model format
Office space can be measured as
- gross
- rentable
- useable
How is office space quoted?
based on rentable space
Gross building area takes into account?
all aspects of the building includes basements, roof structures, common areas, vertical elements, electrical closets, janitorial space, restrooms, etc
Rentable area
portion of the tenants useable area and common areas and ground floors. It excludes elevators, stairwells, etc
Useable Area
this is the actual space used by tenants
Rentable to Useable Ratio
Rentable Area / Useable Area
Office Supply Analysis
- Office property Profile
- Office Space disaggregation
- Survey of the office competition
Office Supply Analysis - Office Property Profile

Inspect the property for?
structure, site, location and legal/regulatory attributes
Office Supply Analysis - Office Property Profile

Get information on
- Rent per square foot (rentable and useable)
- review based on concessions, abatements, type of lease rate quoted

- common area charges
- Lease term
- Vacancy rate
- Tenant mix
- Everything needed to calculate effective gross income
Office Supply Analysis - Office Space Disaggregation

Is office space homogenous?
No! It can/will vary in shape, size, quality, design, and location
Office Supply Analysis - Office Space Disaggregation

Disaggregation is the classification of office space based on?
its attributes
Office Supply Analysis - Office Space Disaggregation

When doing disaggregation you should
- Determine the property's attributes
- Identify the competition and their attributes
- Evaluate the property in relation to its competition
- Know the amount of vacant space in the competition and barriers to entry
Office Properties - Supply and Demand - Gap Analysis
Step 1 - determine specific property use for the analysis

Step 2 - determine market area or office node

Step 3 - calculate market demand

Step 4 - Calculate market supply

Step 5 - Calculate the Market Cap

Step 6 - Determine absorption rate of any excess supply
Office Gap Analysis Step 3 Calculate Market Demand
Get, Average demand ratio per office worker = Total Occupied SF / Total Office Workers

Then, Foretasted number of office workers * Avg sf / worker
Office Gap Analysis Step 4 Calculate Market Supply
Total existing sf
+ estimated pipeline sf
- estimated net conversion and demolitions sf
= forecast supply sf
Office Gap Analysis Step 5 Calculated Market Gap
Forecast demand sf - forecast supply sf = forecast gap sf
Office Gap Analysis Step 6 Determine Absorption Rate of Excess Supply
Existing office workers sf per worker forecast annual growth = forecast absorption rate per year

Excess supply sf / absorption rate = time to absorb excess in years
Office Properties Location and Site Analysis

Location determines the LINKAGE to associated land uses such as
- transportation
- restaurants
- hotels
- executive housing
- employee residential areas
Review office location and site factors
Review office location and site factors
Load factor =
rentable area /useable area
Office Space Classifications
Class A - High quality building in a great area with great amenities (typically 3 stories or more)

Class B - Value Buildings - have good location and quality building with moderate rates

Class C - everything else
Survey of the Office Competition - comparing the following attributes of the subject property and the direct competitors (for disaggregation)
- economic and financial characteristics
- location characteristics
- physical characteristics of the structure
- existing direct and indirect competitive properties
- competitive properties under construction and in planning stage
- vacant sites that could be developed into competing properties
review full list of political and legal factors
review full list of political and legal factors
Office Properties

Types of lease rates quoted:
- Full service and Plus E (electricity)
- Net Lease
Full service and Plus E (electricity)
- generally has an expense stop

- increases in controllable expenses will have a max percentage increase annually
Office Properties

Net Lease
same are all expenses pass through to the tenant, known as triple net (NNN) in retail, which means net of taxes, insurance and common are a maintenance
Office Properties

Operating Income
Potential rental income
- vacancy and credit losses
+ other income
= operating income
Office Properties

Operating expenses includes everything except?
financing costs, debt service, depreciation and amortization, income taxes or capital expenditures or reserves
Office Properties

Capital expenses
- tenant improvement allowance (TI)
- Leasing commissions
Residential Properties

Market and Competitive Analysis (levels of analysis)
- Local economic analysis
- Evaluate supply and demand
- Evaluate the site
Housing units includes?
- single family
- detached-fee simple
- single family attached fee simple
- single family attached-condominium
- apartments
Household
all person who occupy a housing unit
Residential Properties

Location and Site Analysis (levels of analysis)
- demographic and economic factors

- Linkages evaluated
Residential Properties

Demographic and economic factors
- population
- households
- employment
- income
- real estate prices and housing value
Residential Properties

Linkages Evaluated
- transportation
- employment
- retail
- municipal services
- educational facilities
- recreational facilities
- health services
- cultural amenities
- religious institutions
Residential Properties

Review physical site analysis slides
note
Residential Properties

Site size and shape
- Buildable area (usable area determinedb y physical characteristics and legal restrictions)

- Best shape is as rectangular as possible
Residential Properties

Topography is less restrictive for ___________ than _________
Topography is less restrictive for apartments than office, retail or industry
Residential Properties

Soil characteristics effect the cost of?
land development
Residential properties

Externalities for topography. What are positives and negatives
- negatives include landfills, airports, etc
- positives include scenic views, good school, good retail etc
Residential Properties

Physical Attributes of the structure
- size and type of apartment
- design of apartment
- size of apartment building
- style and appearance of building
- age and condition
- environmental hazards
- Amenities
Residential Properties

Linkage and Location Factors
- Compatibility with neighboring land uses (most important for residential real estate)

- Most important linkages are those that improve quality of life (job sites, schools, retail, entertainment, recreation, and cultural venues)
Residential Properties

Legal and Regulatory Factors

Zoning ordinance and subdivision regulations dictate
- ownership information
- permissible units per acre
- buffer and setback requirements
- parking requirements
- deed restrictions
- easements
Residential Properties

Review Apartment Supply Analysis on disagregation where it shows the differing components
note
Residential Properties

Survey the Competition (review Office, pp 5.17-18)
...
Residential Properties

Survey the competition includes
- Property Categories
- Property attributes
- Market standard
- Competitive differentials
- market gaps
____________ of Apartment Market Area and Apartment Trade Area along with warehouse and distribution (Industrial) are the least understood.
Delineation
Residential Properties

Competitive Differentials
- different types of apartments within the same geographic area and outside the geographic area substitutes exist with different linkages

- Physical and psychological barriers such as busy intersections and high crime areas
Residential Properties

Apartment Demand Analysis

Factors Affecting the Geographic Market Area for Apartment Properties
- Household linkage patterns
- household psychographics (tapestry segmentation)
- competitive facilities
- Physical barriers
- Psychological barriers
Residential Properties

Other land uses that generate apartment demand
- employment centers (length of commute)
- school
- shopping facilities
- location of friends and families
- entertainment and recreational amenities
Residential Properties

the difference between linkages in a 1 person versus a multiple person household?
- for single person households linkages are personal while multiple person households linkages has a negotiable group dynamic
Residential Properties

Psychographic Variables associated with linkages
- lifestyle choices
- housing unit style preferences
- neighborhood and school district preferences
- attitude toward commuting (congestion, routes to work, time and cost)
- commuting or neighboring prestige
Residential Properties

Primary and secondary links to apartment market area delineation (Demand)
- Primary is spatial relationship to employment

- secondary is the other land uses
Residential Properties

Primary and secondary links to apartment market area delineation (Supply)
- The primary is the spatial relationship to directly competitive apartments in close proximity

- Secondary links are:

1. apartments not in the same geography but with the same employment links

2. Less directly competitive properties in close proximity

3. Less directly competitive properties with the same employment links
Residential Properties

Apartment Market Area
geographic area that contains apartments that are reasonably good substitutes for each other (can be spatially separate if like-kind neighborhoods and does not have to be a single unified area)
Residential Properties

Apartment Trade Area
The geographic area adjacent to the subject property that contains its direct competitors, the primary demand link and the same spatial position with regard to demand generators
The geographic area adjacent to the subject property that contains its direct competitors, the primary demand link and the same spatial position with regard to demand generators

Apartment trade area is typically a ?
single unified area / same neighborhood
review different apartment node types
note
Residential Properties

Guidelines for Delineating Market and Trade Areas

Apartment Trade Area
Group properties that have the same primary demand links and the same primary supply links (same neighborhood)
Residential Properties

Guidelines for Delineating Market and Trade Areas

Apartment Market Area
Group Together the ATA and other competitors linked to one of the same primary demand links
Residential Properties

Apartment secondary and primary links can be influenced by?
rent adjustments and renovation
Apartment Demand Analysis

The demand for housing is primarily a function of?
Households and their characteristics
Apartment Demand Analysis

Population is not the primary variable in housing the ____ is
Population is not the primary variable in housing the size of the household is
Apartment Demand Analysis

___________________ is the key determinant for measuring housing demand
Household composition is the key determinant for measuring housing demand
Household Characteristcs
- Demographic
- Economic
- Psychographic
Household Characteristics

Demographics
- Head of HH age
- HH size
- Marital status
- Gender
Household Characteristics

Economic
- HH income determines the amount of rent specifically disposable income
- As income levels rise, there is a shift in tenure to ownership
Household Characteristics

Psychographic
- attitudes
- behaviors
- habits
- lifestyle
- preferences
- tenure choice
ways household growth can change
- children grow up and start their own households
- in-migration or out-migration (households move into or out of the area)
How do mortgage rates affect housing demand?
As mortgage rates go up rental demand increases
Three types of households
- single person
- multiple person
- family households
non household population
occupy dorm like facilities. examples are student housing, military bases, institutionalized people
Apartment Market Analysis Estimation Concepts begins by
determining the total demand for all forms of housing units
net migration into the market area
the amount of in migration less out migration
Industrial Properties

Distribution Center/ Warehouse properties are primarily determined by?
zoning
Distribution center/warehouse properties are created with good?
transportation access
Industrial Properties

Review Disaggreagation
Notes
Industrial Properties

Physical Linkages
- Transportation
- Skilled Labor
- Repair Services
Industrial Properties

Physical Linkages

Transportation
- Highways and interstates
- Rail and rail linkage
- Airports
- Water
Industrial Properties

Method for Demand Side Estimation
- industrial employment times average space per employee (however population seems to have a higher correlation)
Issue with demand estimation for industrial properties?
Not well developed and not very accurate
NACS codes for Industrial
- manufacturing
- wholesale
- retail properties that process products
Industrial Properties

Economic / Market Factors

The important linkage is?
population (both the local economic area and the external population needs)
Industrial Properties

Economic / Market Factors

The ability to serve the population depends on?
- GDP change
- Inventory holdings
- Corporate distribution systems
- USDOT driving regulations
- Globalization and outsourcing of manufacturing
- change in retailing warehousing proforma
- Occupancy costs
Industrial Properties

The trend in net absorption of warehouse space follows the trend in GDP with a?
1/4 to 2/4 lag
Industrial Properties

Inventory Holdings

The dollar value of inventories has been?
increasing
Industrial Properties

Inventory Holdings

The ratio of US inventory to sales has?
declined
Industrial Properties

Inventory Holdings

- The dollar value of inventories has been increasing
- The ratio of US inventory to sales has declined

What is the net result?
The dollar value increase has increased the demand for distribution center and warehouse space
Industrial Properties

Distribution networks have become?
more efficeint
Industrial Properties

What are some key regulations administered by the US Department of Transportation?
Daily - No more than 14 consecutive hours of which only 11 may be devoted to driving

Weekly - No more than 60 hours in seven consecutive days or 70 hours in eight consecutive days
Industrial Properties

What is the impact of the US Department of Transportation's regulations?
Local population is served by "short-haul" truckers; 11 hours total means 5.5 hours out and the same back, 300 miles one-way
Industrial Properties

Due to Globalization and Outsourcing ________ have become significant locations for distributions and warehouses
port cities
Industrial Properties

Transportation costs are higher than _____ costs
warehousing
Industrial Property Types
- warehouse
- retail/office showroom and warehouse
- Research and development service facility
- manufacturing
- service center
- office warehouse
Review the sub-parts and definitions for industrial property types
Note
Industrial Shipping Definitions

Container
used for intermodal transportation
Industrial Shipping Definitions

Pallet
also called a skid, typically made of wood
Industrial Properties

Important Site Factors
- access to market area
- Ingress and egress
- Land and site features such as size, soil, drainage, topography
Industrial Properties

Review Building Features
Note
When it comes to legal and regulatory factors, ________ is the most impacted of the property types
Industrial
Legal and political considerations for Industrial Property types are?
- taxes
- zoning
- subdivision regulations
- construction code requirements
- health and safety
- environmental regulations and issues
- location incentives
The two principal resources about retail activity are?
- International Council of shopping Centers (ICSC)

- Urban Land Institute (ULI)
Shopping Centers
a group of commercial establishments planned, developed, owned, and managed as a unit related in location, size, and type of shops to the trade area it serves, and providing on-site parking relating to the types and sizes of its stores.
Eight Characteristics of Shopping Centers
- Unified architectural concept
- A unified site
- Easily accessible location within the trade area
- Sufficient onsite parking
- Service facilities for the delivery of merchandise
- Site improvement (such as landscaping)
- A synergistic tenant mix
- Comfortable surroundings
Review shopping center types and their characteristics
Note
Mixed-Use Developments
integrates a combination of retail, residential, hotel, office, recreation or other functions
Mid-Use Developments

Pedestrian-Oriented
Maximizes space usage, has amenities and has architectural expression and tends to mitigate traffic and sprawl
Retail Properties

The unit of measure commonly used in retail properties
Gross Leasable Area
Retail Properties

In-Line space
the retail space between the anchors and the end caps
Retail Properties

End cap space
the retail space at the end of a line of stores in aa shopping center
Retail Properties

Elbow Space (think "Inside" and "outside")
"Inside" is the inside corner of an L-shaped center. "Outside" is the outside corner of a U- or L-shaped center
Retail Properties

Out Parcel
Land adjacent to a shopping center sold separately for restaurants, banks, drive throughs, gas stations, etc
Retail Properties

Pad Site
A parcel of land on the site intended for the anchor tenant and integrated into the shopping center
Retail Properties

NAICS Codes
44-45
Retail Properties

Market and Competitive Analysis

Region
Core areas containing a large population nucleus, together with adjacent communities, have a high degree of economic and social integration. Regions are further divided into market areas, called markets. Retail regions are typically formal geographies such as metropolitan statistical areas (MSAs) or a combination of counties.
Retail Properties

Market and Competitive Analysis

Market
Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are building type specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region. Markets can be further subdivided into submarkets. Retail markets are typically formal geographies such as counties or divisions of counties.
Retail Properties

Market and Competitive Analysis

Submarket
Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (see also: market). Submarkets are typically formal geographies such as ZIP codes (a combination of ZIP codes).
Retail Properties

Market and Competitive Analysis

Retail Trade Area
The geographic area from which the steady, sustaining patronage for a shopping center is obtained; its extent is governed by many factors, e.g., the shopping center itself, its accessibility, the extent of physical barriers, the location of competing facilities, the limitations of driving time and distance.
Retail Properties

Market and Competitive Analysis

Retail trade area (RTA) delineation
the process of identifying the boundary of the subject property's retail trade area using expert judgment based on the attributes of the subject property and its direct competition. The RTA boundary typically lies between the subject property and its competition. Therefore the RTA is defined using a Theissen Polygon
Retail Properties

Market and Competitive Analysis

Retail Trade Area Delineation

Theissen Polygon
The RTA is defined using a Theissen Polygon, half the distance to the next occurrence of competing supply. It is at this distance where the proposed new location "cannibalizes" the sales of the next occurrence of supply, i.e., the closest store
Retail Properties

Market and Competitive Analysis

Retail Trade Area Delineation

Reilly's Law of Gravitational Analysis
Customers will frequent the closest store (which is the most convenient). Reilly's Law also considers the impact of the size of the store and the "gravitational pull" of a larger store verses a smaller store.
Ways to compute Retail Demand Estimate
- Purchasing Power

- Disposable Purchasing Power

- Allocation of Purchasing Power Based on Consumer Expenditure Patterns
Retail Demand Estimate

Ways to estimate Purchasing Power
Population * Per Capita Income

Households * Average Income
Retail Demand Estimate

Disposable Purchasing Power
gross income - payroll and income taxes and adjusted for sales tax
Retail Demand Estimate

Allocation of Purchasing Power Based on Consumer Expenditure Patterns
Examining the percentage of income spent on the various categories of retail
Retail Trade Area is a continuous geographic area from which
sustaining patronage is obtained
Retail Trade Area when a retailer's trade area criteria are known, the primary purpose of market analysis is?
site selection
Retail Trade Area when a potential trade area is known, the focus of the analysis is?
evaluating how well the site and retail trade are meet the criteria
Retail Demand Analysis

Leakage
the portion of retail demand fulfilled outside the designated geographic area
Retail Demand Analysis

Leakage varies by?
retail expenditure type
The retail trade area is different for?
different categories of retailers and facilities
Retail Gravity Model

Why is it powerful?
it's the only analysis that can be used to simultaneously consider both demand and supply
Retail Gravity Model

If total customer expenditures from specified origins such as census tracts are known, the _________ to all retail stores including proposed new stores can be obtained
revenue
Retail Gravity Model is product-constrained because?
It is product-constrained because the total revenue to all stores is equal to the total amount of known customer expenditures
Retail gravity Model

Inputs to the model
- total consumer expenditures for a specific good by census tract or block group

- location and size of each store

- distance between all origins and destinations
Retail Demand Analysis

Drive-Time Approach is based on?
Central Place Theory
Review Drive Time Approach Steps
Note
Retail Properties

Linkages

A retail store is linked to?
- A retail store is primarily linked to customers who reside on parcels of land adjacent to, and in close proximity to the retail store (AKA the residential base) (Primary link)

- The retail establishment can serve the needs of the immediate geographic area (aka the daytime population)

- Employees

- Distribution centers
Review Retail Properties Location Factors
Note
Review Retail Properties Site Factors
Note
Review Retail Properties Physical Attributes of the Structure
Note
Review Retail Properties Political and Legal Factors
Note
Retail Properties

Gross Leasable Area
The total floor area designed for tenant's occupancy and exclusive use (this is the standard for statistical comparison)
Retail Properties

Gross Leasable Area of mall shops
Total floor space occupied by mall tenants in super regional and regional centers
Retail Properties

total Occupancy Area
Total Floor Space of the Center
Retail Properties

Common Area
Not designed for rental tenants but available for common use by all who use the mall (i.e. walkways, parking, landscaped area, restrooms, service areas)
Retail Properties

Parking Area
Ratio of parking area to gross building area
Retail Properties

Parking Area Ratio/Parking Index
Parking spaces per thousand sf of GLA
Retail Leakage
Residents are spending more for products than local products capture suggestion unmet demand in the trade area
Retail Surplus
The community's trade area is capturing the local market plus attracting non-local shoppers. This does not necessarily mean that the area cannot support additional businesses, it might just be a cluster that attracts business.