What CRE can learn from a real estate market analysis report
Virtually all real estate service firms offer some type of real estate market analysis. These reports are typically offered at no cost and some are quite good. Some larger firms such as CBRE, Jones Lang La Salle (JLL), and Cushman and Wakefield, offer global reports with focus on all the major market cities. Typically reports covering market analysis of real estate are issued quarterly with annual forecasts and summaries.
The reports are based primarily on brokerage activity, and most are quite detailed and accurate.
What real estate market analysis reports cover
Generally the reports cover the following categories:
- Gross and net rental rates (in $ per square foot) by property type, including office, industrial, retail, apartments, land valuation.
- Key statistics include absorption rates, vacancies, implicit interest rates, and major transactions including major leases, subleases and sales.
- Markets are organized by major metropolitan areas (both suburban, and central business district). Markets are further divided by property quality: A,B C. Many of the reports cover international markets including Canada, UK, Continental Europe, Asia, Australia, and Middle East.
- Most reports provide forecasts of rental rate trends, interest rate trends, and outlook on availabilities, and shortages.
- Key statistics include vacancy rates, absorption (rate at which space is absorbed), space growth or reduction, interest rates, and major transactions.
- The reports usually provide a commentary on market conditions, and key factors influencing market dynamics such as employment trends, new construction, regulatory changes, and changes in key factors such as zoning changes, etc.
The value of a focused real estate market analysis report
CRE managers can order special market reports that focus on specific markets and sub-markets. Ordinarily, real estate service firms will provide market analysis as part of a brokerage assignment. Sometimes it’s wise to have more than one report to validate projections and trends.
Real estate market analysis: the latest trends
In reviewing the latest reports, I was struck by some key findings:
- The Tech industry is the key driver in office markets nationwide, particularly in West Coast markets.
- The trend of growth in urban markets is beginning to subside with a resurgence in suburban markets.
- Growth in shared offices continues to trend upward, with growth in most urban and suburban markets.
- In general, the real estate markets worldwide are in good shape with no contraction anticipated over the next three years. Some analysts raise concerns with a downturn possible after three years, but there is no consensus on this possibility.
CRE managers need to stay abreast of real estate market trends and adjust leasing and portfolio strategy as appropriate.
I recommend taking a five year view of the markets, and update your company’s real estate strategy based on a five year rolling forecast. This means becoming knowledgeable about the insights provided by real estate market analysis reports, and following the trends on a quarterly basis.