1. Ch 13: Understanding Real Estate Market Dynamics

2. 2 Ch 13: Outline  I. Real Estate Space Markets  II. Real Estate Asset Markets  III. Real Estate Market Analysis

3. 3 I. Real Estate Space Markets  Def: Mechanism or arrangements for trading the between in exchange for.

4. 4 Space Market Segmentation  Space markets are segmented by location and type of use. Types of use are:  Office  Retail  Industrial  Agricultural  Lodging  Residential  Other

5. 5 II. Real Estate Asset Markets  Def: mechanism or arrangements for trading the between.

6. 6 Asset Market Segmentation  the real estate asset market is part of the larger capital market, which include 1. Equity Assets a) public (stocks, mutual funds, REITs) b) private (real property, private companies, private partnerships & REITs) 2. Debt Assets a) public (bonds, MBS) b) private (bank loans, mortgages, venture debt)

7. 7 Asset Market Price Determination  prices in real estate asset markets are determined by: 1. 2. 3.

8. 8 III. Real Estate Market Analysis  Examination of of a real estate market and the balance (equilibrium) between them.

9. 9 Inputs to Market Analysis (Overview of Supply & Demand Conditions)  1. Vacancy/Occupancy  2. Rent or price level  3. Quantity of new construction started  4. Quantity of new construction completed  5. Absorption  6. Months Supply

10. 10 Vacancy/Occupancy vacancy rate = vacant space/total space occupancy rate = 1- vacancy rate Example: An office building has 111,000 sq ft of total space available for lease, of that 94,350 sq ft are leased. What is the vacancy rate?

11. 11 Absorption absorption=end of year occupied units–beg of year occupied units absorption rate = absorption units / beg of year vacant units Example: Consider a retail market which has 1.2 mil total sq ft with 900,000 sq ft of occupied space at the beg of the year. If there were 930,000 sq ft occupied at the end of the year, what would be total absorption and absorption rate?

12. 12 Months Supply (Looking into the Future) Months supply = (vacant space + space in construction)/net absorption per month If months supply =< construction time for new projects, then a new project will likely. Example: Assume that total supply for warehouse space in a market is 180,000 SF. Net absorption is 10,000 per month. What is “months supply”? If it takes 1 year to build a warehouse should the builder start the building process? If it takes 2 years to build a warehouse should the builder start?

13. 13 Key Drivers for Different Types of Space Markets  Office: employment in office occupations  Lodging: air passenger volume, highway traffic counts, tourism receipts, number of visitors  Retail: per capital income, aggregate income, wealth measures  Industrial: manufacturing employment, transportation employment, shipping volume  Apartments: population, household formation, local housing affordability, employment growth (blue and white collar)  Owner-occupied residential: population, household formation, interest rates, employment growth, income growth

14. Ch 14: Urban and Regional Economics

15. 15 Ch 14: Outline I. Introduction to the Field of Urban & Regional Planning II. Determinants of Comparative Advantage III. Economic Base Analysis IV. Bid Rent Curves & Highest and Best Use V. Urban Growth Patterns VI. Neighborhood Change

16. 16 I. Introduction to the Field of Urban & Regional Planning The history of U&R planning in FL: - Early 1900s: very little planning in FL. - 1920 & 30s: first planned areas are: Palm Beach, Naples, Hollywood, and Vero Beach. - 1939: FL is last state to adopt the “Standard Zoning Enabling Act” (gives cities authority). - 1968: state constitution gives planning power to municipalities (cities and counties), Ch. 163, F.S. - 1985: FL adopts the “Growth Management Act”: local governments plan for current and future growth under the “concurrency” provision. (Note: changes to the provision have been made).

17. 17 I. Introduction to the Field of Urban & Regional Planning  The U & R Planning Career  The Concept of Sustainability Economy Society Environment  The 3 Documents that Planners Create 1. The Comprehensive Plan 2. Zoning Maps & Codes 3. Land Development (or Subdivision) Regulations

18. 18 II. Determinants of Comparative Advantage  Transportation facilities  Educational facilities  Created environment  Natural resources  Climate  Labor force  Leadership

19. 19 III. Economic Base Analysis  Export (basic) activities Examples:  Population serving (non-basic) activities Examples:

20. 20 III. Economic Base Analysis  Goal: Follow 6 steps to forecast total local population:  1. Calculate the Location Quotient (LQ) (the LQ determines whether a sector is basic) e = local employment in industry/total local employment E = national employment in industry/total national employment LQ = e/E if LQ > 1 => the community has a greater share of its total employment concentrated in an industry than does the national economy, therefore it is basic.

21. 21 III. Economic Base Analysis  2. Estimate the Community’s Total Basic Employment (BE) BE=Local employment in basic industry x[( LQ–1)/ LQ] (repeat for each basic sector (LQ>1) & add up across basic sectors to get total BE)

22. 22 III. Economic Base Analysis  3. Calculate the Economic Base Multiplier (EBM): helps in predicting the change in total local employment due to changes in basic employment EBM = total local employment/BE  4. Forecast Total Local Employment = forecast of BE x EBM

23. 23 III. Economic Base Analysis  5. Calculate the Population to Employment Ratio: total local population/total local employment  6. Forecast Total Local Population = Forecasted total local employment x population to employment ratio

24. 24 IV. Bid Rent Curves and Highest and Best Use  Land rent: that a particular parcel of land will bring in the open market  Highest and best use – the use of land that results in the  Each parcel of land has a highest and best use  Bid-rent curves depict the relationship between and that various user groups are willing to bid for various locations in an urban area.

25. 25 Bid Rent Curve

26. 26 V. Urban Growth Patterns 1. Concentric Circle growth 2. Axial growth 3. Sector growth 4. Multiple-Nuclei growth

27. 27 VI. Neighborhood Change  Gestation  Youth  Maturity  Incipient Decline  Accelerated Decline/Abandonment  Gentrification