Chapter 15 Ch 15: Market Analysis

Market analysis is the analysis of: Supply and demand factors that influence the market for properties similar to the subject site (SS). Changes over time in the local market are important because the sales prices of comparable properties may have to be adjusted for anticipated changes in the market. Comps need to be adjusted for “market conditions (time)” – this adjustment typically allow use of comps one to three years old. Trends in vacancy and rent may be used for the income capitalization method. Chapter 15

Market areas are defined by: Places where people live and work Usually a collection of neighborhoods and districts Often an entire metropolitan area or city Chapter 15

Zoning and land use districts are typically larger than neighborhoods but smaller than market areas Zoning often limits land uses to single family, multifamily (apartment), retail, office, industrial and the like. Read about multifamily districts on pp97-98 since this is directly related to your projects. Central Business Districts (CBDs) are important because they contain most employment in a typical city CBDs include many land uses and cultural facilities CBDs are the focus of the city, so distance (and access by highway and public transit) of your subject site (SS) to the CBD is an important characteristic of your SS Chapter 15

The six step market analysis process Define the SS: physical and legal characteristics Delineate the market on a map Demand Analysis- Customer age, gender, income, etc. What do customers want? Where are they now? Changes Supply analysis: characteristics of competitive properties: existing, under construction and proposed Supply-demand balance? Excess demand or supply? SS market capture and revenue forecast The bottom line on market analysis (Step 6) is the top line (pro forma revenue) of cash flow projections and discounted cash flow analysis. Chapter 15

Marketability Analysis - absorption Marketability, as applied to the apartment market, is an analysis of the time it takes to rent vacant apartments. Suppose an apartment building has 10 units vacant and available for rent. How long will it take to rent these units at the going market rental rate? Absorption is the change in occupied space per unit time in the local apartment market E.g., if absorption is 10% of the vacant units per year, then we might expect to rent only one unit per year. Chapter 15

Economic base analysis is used to estimate demand changes in the entire metro market Basic employment brings money into the area by exporting its products or services. E.g., insurance and aerospace companies near Hartford Basic employment change can be anticipated by looking at trends in major employers (e.g. United Technologies) or in the entire industry (aerospace) A government agency (e.g., UCONN) is basic employment because the whole state pays for local employment A growing (declining) economic base suggests that demand for apartments in Hartford will grow (decline) at roughly the same rate. Chapter 15

Review exercises are strongly recommended Chapter 15