1. Driving Forces of Real Estate Markets
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. Short-Run Market Analysis
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. Intermediate and Long-Run Market Analysis
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