Ch 13: Understanding Real Estate Market Dynamics

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Ch 13: Outline

I. Real Estate Space Markets II. Real Estate Asset Markets III. Real Estate Market Analysis

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I. Real Estate Space Markets

Def: Mechanism or arrangements for

trading the

between

in exchange for .

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Space Market Segmentation

Space markets are segmented bylocation and type of use.

Types of use are: Office Retail Industrial Agricultural Lodging Residential Other

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II. Real Estate Asset Markets

Def: mechanism or arrangements for

trading the

between .

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Asset Market Segmentation the real estate asset market is part of the larger

capital market, which include

1. Equity Assetsa) public (stocks, mutual funds, REITs)b) private (real property,

private companies, private partnerships &

REITs)

2. Debt Assetsa) public (bonds, MBS) b) private (bank loans, mortgages,

venture debt)

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Asset Market Price Determination

prices in real estate asset markets are determined by:

1.

2.

3.

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III. Real Estate Market Analysis

Examination of

of a real estate market and the balance (equilibrium) between them.

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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

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Vacancy/Occupancy

vacancy rate = vacant space/total spaceoccupancy 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?

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Absorption

absorption=end of year occupied units–beg of year occupied units

absorption rate = absorption units / beg of year vacant unitsExample: 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?

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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?

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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

Ch 14: Urban and Regional Economics

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Ch 14: Outline

I. Introduction to the Field of Urban &Regional Planning

II. Determinants of Comparative Advantage

III. Economic Base AnalysisIV. Bid Rent Curves & Highest and Best

UseV. Urban Growth PatternsVI. Neighborhood Change

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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).

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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 Create1. The Comprehensive Plan2. Zoning Maps & Codes3. Land Development (or Subdivision) Regulations

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II. Determinants of Comparative Advantage

Transportation facilities Educational facilities Created environment Natural resources Climate Labor force Leadership

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III. Economic Base Analysis

Export (basic) activitiesExamples:

Population serving (non-basic) activitiesExamples:

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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 employmentE = national employment in industry/total national employmentLQ = 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.

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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)

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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 employmentEBM = total local employment/BE

4. Forecast Total Local Employment = forecast of BE x EBM

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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

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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.

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Bid Rent CurveBid Rent Curve

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V. Urban Growth Patterns

1. Concentric Circle growth

2. Axial growth

3. Sector growth

4. Multiple-Nuclei growth

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VI. Neighborhood Change

Gestation Youth Maturity Incipient Decline Accelerated Decline/Abandonment Gentrification