Market Analysis by Joseph Armato to Commercial REAL ESTATE Investing

Here, we examine some of the key components of “market analysis” as it relates to commercial real estate investing.

Getting the market area right for the property under consideration

Determining the market area for the property you are thinking of buying is the first step in a market study. The local geographic region that the facility will serve is known as the market area. In other terms, it refers to the area that the property will cover. The retail, hotel, warehousing, and banking industries are most affected by this. The type of land and the sort of company operated there will both have a significant impact on the market region. A department store’s market area would be its local surroundings, or, let’s say, a 2-kilometer radius. Let’s imagine a mall has a market area of five to ten kilometers.

Once you decide on the market area, it is important to look at the economic and demographic data available for that market area. How many people are living in the area and what is their income levels, education levels, household size, age, marital status, and employment rates, are some of the things you should look at. Sometimes, the area is developing and more and more construction is happening and the population in the market area is likely to go up. Investment in such an area may be very profitable. On the other hand, if the area has seen a lot of development and there is no likelihood of the population in the area to go up, then the investment in commercial property there can give stable returns but not exponential returns.

Gathering the data

There are several sources of information available for every particular location, so make sure you receive the most recent information possible. Frequently, the government’s data may be trusted. However, a number of organizations, NGOs, and statistics corporations may have access to excellent data and analysis of a certain market. Which of them is operating in the market where you are considering investing must be determined. Data might be offered for a price by companies or organizations. You may want to think about purchasing data from these businesses depending on the size of your projected investment.

Analyzing vacancy rates and net absorption figure in the market area

Another extremely essential thing to consider is the area’s vacancy rates. Even a location with a desirable demography may not be a smart place to invest if there are significant rates of commercial property vacancy. Even your home might not be able to provide adequate rental income due to high vacancy rates. Investments are deemed safe in areas with vacancy rates of up to 5%, but anything higher than that is not seen as being particularly good. Another factor to consider is net absorption. The change in the volume of leased space in the specified market region during a certain time period is known as net absorption.

Demand and supply dynamics in the market area

There are businesses that have accurate information on the average and precise rental rates per square foot in every particular market location. Additionally, they offer historical information on the supply and demand of real estate, particularly commercial real estate for different regions. They can also provide information on the market’s rival companies’ current sales and rent levels. They might be used to improve analysis.

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