Transcript Ch 13 & 14 Understanding Real Estate Market Dynamics & Urban

Ch 13: Understanding Real Estate
Market Dynamics
Ch 13: Outline



I. Real Estate Space Markets
II. Real Estate Asset Markets
III. Real Estate Market Analysis
2
I. Real Estate Space Markets

Def: Mechanism or arrangements for
trading the
between
in exchange for
.
3
Space Market Segmentation

Space markets are segmented by
location and type of use.
Types of use are:
 Office
 Retail
 Industrial
 Agricultural
 Lodging
 Residential
 Other
4
II. Real Estate Asset Markets

Def: mechanism or arrangements for
trading the
between
.
5
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)
6
Asset Market Price Determination

prices in real estate asset markets are
determined by:
1.
2.
3.
7
III. Real Estate Market Analysis

Examination of
of a real estate market and the
balance (equilibrium) between
them.
8
Inputs to Market Analysis
(Overview of Supply & Demand Conditions)






1.
2.
3.
4.
5.
6.
Vacancy/Occupancy
Rent or price level
Quantity of new construction started
Quantity of new construction completed
Absorption
Months Supply
9
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?
10
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?
11
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?
12
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
13
Ch 14: Urban and Regional
Economics
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
15
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).
16
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
17
II. Determinants of
Comparative Advantage







Transportation facilities
Educational facilities
Created environment
Natural resources
Climate
Labor force
Leadership
18
III. Economic Base Analysis


Export (basic) activities
Examples:
Population serving (non-basic) activities
Examples:
19
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.
20
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)
21
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
22
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
23
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.
24
Bid Rent Curve
25
V. Urban Growth Patterns
1. Concentric Circle growth
2. Axial growth
3. Sector growth
4. Multiple-Nuclei growth
26
VI. Neighborhood Change






Gestation
Youth
Maturity
Incipient Decline
Accelerated Decline/Abandonment
Gentrification
27