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 marketβs 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 marketβs 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 developmentβs likely capture rate
Huffβs 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 βcomparablesβ
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
βInformedβ 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 areaβs 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
