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Real Estate Markets Analysis: Trends, Influences, and Economic Drivers

Explore the driving forces of real estate markets, submarkets, rental rates, and price trends. Understand the significant influences on rents and prices, supply and demand dynamics, and characteristics of real estate markets in the short and long run.

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Real Estate Markets Analysis: Trends, Influences, and Economic Drivers

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  1. Lecture 1 Driving Forces of Real Estate Markets

  2. “Markets” “Mechanism through which all goods and services are voluntarily exchanged among different owners” Through price, markets allocate scarce resources among competing uses. Real Estate Submarket: “Property within a certain price and quality range and within specified geographic areas that potential tenants or potential buyers would consider as alternatives when looking at a Subject Property”

  3. Rental Rates and Prices • Single-Family, Owner-Occupied Market • General Price Trends • Long-term benefits • Corporate World (long-term tenancy) • Minimizing long-term occupancy costs • Rent • Investment World • Rental trends AND Price Trends

  4. Significant Influences on Rents and Prices • Global Influences • Exchange Rates, Recessions, National Disaster • National Influences • Tax Laws, Interest Rates • Local Influences • Employment Trends, Social Patterns, Changes in Development

  5. Supply & Demand SUPPLY = SELLERS / LANDLORDS / AVAILABLE REAL ESTATE DEMAND = BUYERS / TENANTS

  6. Demand Curve Price/Rent As price decreases, quantity demanded increases Quantity of Space

  7. Short-Run Supply Curve Price/Rent Reflects inelasticity in a Short-Run market Quantity of Space

  8. Long-Run Supply Curve Price/Rent Reflects more elasticity in a Long-Run Market Quantity of Space

  9. Kinked Long-Run Supply Curve Price/Rent When price is above Pe, new supply will enter the market Pe Quantity of Space

  10. Characteristics of Real Estate Markets • Durability • Inelastic short-run supply • “Lumpy and Large” Economic Unit • Infrequent Purchase • Highly-levered industry • Large shifts in supply within localized markets • Costly Information • Data not easily available • Costs of Market Studies and Appraisals • Search Costs

  11. Characteristics of Real Estate Markets • High Transaction Costs • Title Insurance, Broker Fees, Lending Fees, Inspections/Due Diligence, Surveys, Endorsements, etc. • Fixed Location • Allows Real Estate to be Substitutable • Heterogeneity • Creates greater costs for market information and searching • Government Regulated • Limits Real Estate Use • Can help or deter real estate use and value

  12. Lecture 1 Short-Run Market Analysis

  13. Seasonality: Residential Home Sales Average Monthly Sales Springtime housing sales tend to run 40% higher than in December 120% 100% 80% 60% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

  14. Lecture 1 Intermediate and Long-Run Market Analysis

  15. Economic Base Analysis Export Sector: Employment bringing revenues into a region (i.e.: manufacturers of any product that serves more than the local population and brings revenues into the local region from outside) Multiplier Effect: New workers in an economy creating/causing even more jobs in different submarkets Service Sector: Employment geared toward serving the local population

  16. Factors Affecting Growth • Regional Demographic Trends • Birth rates, death rates, size of households, income trends gender, education, social patterns, etc. • Regional Supply Constraints • Physical: Lakes, topography, wetlands, etc. • Social: Politics, local planning/zoning boards, growth goals, etc. • Regional Transportation Costs • Public Transit Systems (bus, rail, etc) • Linkage • Urban Sprawl

  17. The Internet and Real Estate • Location-Free Workers • Work Space and Living Space accomodating workers • E-Commerce threat to the Retail Real Estate Submarket • Warehousing

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