How to Conduct an Effective Commercial Real Estate Market Analysis?

While investing in a commercial real estate market it is inevitable to hit a roadblock due to the abundance of promising regions and properties.

Creating an assessment report about the commercial real estate market will shed light on various anomalies. This will eliminate ineffectual options and bring focus towards alternatives that contribute towards future growth plans.

Why should you do a commercial real estate market analysis? 

Having an aim will aid in ruling out certain factors that might prolong your decision-making process. So, deciding what you want from this analysis will consolidate your list and help you find the perfect commercial property. Here are some reasons that rationalize the need for a commercial real estate market analysis:

• It will help investors know the market rates of the properties and allocate funds accordingly.

• It presents demographic trends of regions that will help select appropriate future tenants or occupiers.

• A zone-wise report will help interested parties understand and invest in the type of commercial properties that are in demand. 

• Keeping track of future commercial projects in the region will help understand the benefits or risks it will present to potential investors. 

Knowing these reasons initiates the task of putting together an analysis report, it would also be wise to study and observe the data that would supplement your selection process. 

What is the real estate data required to conduct a market analysis?

Many components contribute to a real estate market analysis report. Here are some of the common ones that can apply to any type of commercial property:

Property values

This term is synonymous with Capital values, which include the complete costs covered for constructing a property or land. Property valuation is the main component that determines the decision to purchase or sell an estate.   

A commercial property valuation is conducted based on locally available data about different regions targeted by commercial real estate players. A simple way to arrive at this would be by obtaining the average sales price available for the area of interest and dividing it by the square footage of the space available. 

Construction period

A commercial property can also be valued through its age. A newly constructed property fetches more value as compared to an estate in a declining physical condition. However, it is also possible to reinstate an old building’s position in the real estate market through renovation. 

Properties registered under the requirements of the Real Estate Regulations and Development Act will have a record of all the costs and changes undergone along with the duration of construction and completion.

Rental yields

There are two ways to gain from investing in commercial properties, the sale of a property and rental yields. In the second case, an investor would expect the income gained from a property to increase periodically. 

Though market appreciation automatically increases property values, and in turn rental rates, maintenance expenses also play an important part in future projections. A hard-to-maintain estate isn’t preferred due to increasing operating expenses. 

Occupancy Levels

The occupancy rates are indicators of the demand for commercial property. The demand also affects earnings in terms of rent or lease payments. A property in a newly developed area may have low occupancy levels, in these cases, the owner is left to search for tenants. It would result in increasing costs and low income. 

Commercial properties located in highly sought localities with a fair level of existing occupiers might have a chance of gaining higher rental income or profits from selling the property. 

Steps to perform the analysis

The following steps act as an outline to assist with the initial steps of a commercial real estate market analysis:

Establish a Purpose

Keeping a goal in mind will help you realize what you want to achieve with this analysis. Doing thorough research on the target market, i.e., property values, recent market trends, occupiers preference, etc. will broaden your perspective. 

• Is your purpose to understand the yearly changes in property valuation?

• Is it to know your competitors in a preferred market region?

• Is your aim to cater to a specific set of demographics through your properties? etc. 

Based on this, prepare a plan that would cover all the technical aspects of the market analysis.  

Select a suitable Analysis Method

A major part of an analysis report relies on a hypothesis. A hypothesis is a statement that specifies your purpose. Once you have decided on the type of results you expect from the analysis, it is easier to come up with a method to execute it. Though there are various methods available, it is best to choose the ones that will serve your purpose. 

As each type of property has a different approach, using the ones that can accommodate periodical changes in market prices, expenses, etc. will support your hypothesis and help you draw favorable conclusions.  

Collect Data from reliable sources

Key data points about commercial properties are generally available on government-authorized  property registration websites. However, it is also wise to monitor local real estate websites that put up listings. 

While some of the information may be available through extensive web surfing, it might be best to consult well-known real estate agencies to obtain accurate information for a precise analysis. Divide your data collection process into categories and store the data in an understandable format.

Monitor External Influences

The commercial real estate market is dependent on external factors similar to any other business-oriented sector. A country’s economy going through a cycle that affects the cash flow, introduction of newer transportation systems and increase and decrease in interest rates, GDP, etc. are some of the common influences that cause erratic changes in prices. 

Taking these changes into account, investors must keep a watch on the current and upcoming changes proposed by authorities. These changes along with the changes made in the past need to be included during calculation. 

Analyze the Results and Observations

The analysis report of a commercial real estate market should contain all available information that you need to make informed business decisions. The results calibrated by statistical tools provide a comparison between a set of numerical data, the observations are based on parameters that you have put forth in the hypothesis.  

Identification of changes in trends and patterns will provide clarity and evaluate the risks that an investor or an organization is willing to undertake to attain a successful property deal. 

Conclusion

Instead of diving headfirst into commercial property transactions, it would be wise to have concrete data at hand that supports your ideas. Performing a market analysis will make you understand the subtleties behind each aspect of commercial real estate.

There are various technological tools available that can extract results by providing appropriate inputs. Select the tools or software that would match your requirements. Referring to previous market reports published by reputed real estate agencies can be of assistance.

For more such information, contact our competent team of real estate experts.