RCA Commercial Real Estate Sales Trends & Market Research

Let’s walk through the key components of a real estate market analysis and the things that matter most when deciding where to invest

What Demographics Tell You

So when the big name institutional investment firms are deciding whether or not they want to enter a market these companies are usually going to focus on three main things and the first thing on this list that you will also want to look at when deciding whether or not to target a certain metro is the demographic profile of the market that you’re analysing now there are a lot of different things that make up the demographics of an area.

One of the most important components for real estate investors is the ‘’net migration’’ within the market which reflects the net number of people who move into and out of an area during a specified period of time. Net migration figures can be some.

One of the most important metrics to track when analysing a market since these will tell you directly how the population is changing and whether that’s shifting in a positive or negative direction and as far as the things that impact net migration in an area.

Job growth

It is one of the biggest metrics that ends up affecting net migration patterns since even with the rise of remote work people still tend to move where the jobs are cities like austin, miami and phoenix area

Prime examples of this with huge job growth numbers posted in each of these markets over the past few years which has led to a ton of real estate rent and value growth with demand outpacing supply in a really big way.

Employment Concentration

Employment Concentration is also something investors are going to take a hard look at when analysing a geographic market especially if that market is reliant upon the success of just one or two specific industries or even one or two  

Specific companies that could tank real estate rents and values if these industries or companies were to contract or even disappear and employment not only brings people into an area but also impacts how much those people spend within a market which makes.

Income Statistics

Another metric that is heavily scrutinised by investors specifically those focused on consumer facing product types for example the success of retail properties is directly  

tied to consumer spending which is directly impacted by incomes and changes in incomes over time and for multi-family properties incomes directly impact how much an individual or family can pay to rent a unit directly affecting the overall revenue that property owners are able to generate ultimately investors are looking for markets that show

‘’strong net migration patterns, strong job growth, a diverse employment base and an upward trajectory in incomes’’ that can support ‘’b2c property types’’ and general economic growth within the area.

An Example Company Real Capital Analytics

Supply And Demand Dynamics

From overall demographics investors are also going to be looking at the effect of those demographics on real estate metrics directly and they’re going to do that by next taking a look at the supply and demand dynamics that are present in the market on the supply side of things investors are most closely going to be looking at the current construction Pipeline.

Construction Pipeline

This represents the total square footage or number of units that are projected to come online within the next one to three years and the construction pipeline is usually broken down into 4 different categories including:

• Proposed projects
• Planned projects
• Projects under construction
• Newly built properties

That is currently in lease up each of which can give an investor a general sense of how much new product is going to be delivered into the market in the near term and whether or not demand is going to keep up and on the demand side of things investors are usually going to be focused on.

Three main metrics and these are going to be the,

• Current vacancy levels in the market 
• Net absorption in the market
• Historical and projected rent growth figures

• Current vacancy: Within the market is important because this metric is going to tell an investor the percentage of leasable area in the market that is not currently occupied which can provide a really helpful snapshot of the supply and demand balance or imbalance at the current moment in time however when trying to underwrite projected property performance into the future.
• Net Absorption Figures: It will often tell an even clearer story about where the market is headed and what vacancy statistics might look like over the next few years and if you’re not familiar with the term net absorption this number represents,

Net Absorption = Total SF/Units that became physically occupied that became physically occupied in a given period – Total SF/Number of units that became physically vacant in that same period 

With strong positive net absorption serving as an indicator that demand is outpacing supply and ultimately the rate at which demand outpaces supply directly impacts Rent growth in the area.

Rent Growth

Which has a huge Effect on how investors value deals and the profitability of a potential acquisition or development play within the immediate area overall when looking at supply and demand dynamics investors are generally going to be looking for markets with,

1. Limited New Competing Supply
2. Tight Vacancy Rates
3. Strong Net Absorption Figures
4. Rent Growth Projections

These meet or exceed actual historical values now once an investor has a solid grip on the demographics of the area and the current and future supply and demand fundamentals in the metro, the last step in analysing a market.

Why The Capital Matter

It is getting a sense for the current state of the capital markets, specifically total investment sales figures and major lease or sale transactions that can tell an investor more about tenant and investor interest within the market today. On the investment sales side strong investment volume usually means a larger buyer pool.

When you go to sell the deal and likely a more competitive bidding process which can push pricing a lot at the time you’re ready to exit and as far as notable transactions are concerned the biggest deals are often done by the biggest players in the industry which can leave clues as to what future investment volume might look like and other investment firms or tenants that might enter the market over the near term so for example if you’re analysing  

A deal in a secondary market and you find out blackstone just bought a 100 million dollar property right down the street you can bet that they’ve spent a significant amount of time and resources building that investment thesis but also that many other major institutions are probably seeing the same things and they will likely follow suit again increasing demand in the market and increasing your exit optionality when you ultimately sell the deal and on the leasing side of things if you’re analysing a deal on a secondary market and google signs an office lease right down the street this could have huge implications for demand in the market 

From other major office tenants but also for,

• Residential housing for these employees
• Retail stores that these employees will shop
• Industrial warehouse space

That will be necessary to get products ordered online to these people more quickly overall these are the things that investors are going to be looking for when trying to find that next hot market and the stats that are often included in investment committee presentations and equity memos to paint the picture around why the location of the deal makes sense and how that location is going to help boost property returns over time.