Market Analysis

Through my education, I have learned that developers must assess and quantify the risks and opportunities that face each of their projects. To accomplish this, reliable data must be used to support how and why a development project will be successful within a specific market. For example, two key gauges of market potential developers commonly refer to are housing unit starts and basic job growth. Single family residential lot developers tend to focus much of their market assessments on housing unit starts. On the other hand, commercial real estate developers focus much their market analysis on basic job growth. Basic, or export, industries produce more goods and services than can be consumed within a local economy. Commercial real estate developers can create their own Economic Based Analysis (see below) to determine which industries provide basic jobs within specific local economies, and residential land developers may hire trusted research companies to provide detailed market reports of local housing starts and sells. 

Experienced developers are commonly able to understand, critique, and summarize market reports so they can properly vet project proposals. A reliable market report will inform land developers of how many residential lots have been built and sold within a region, and the reports can be used to identify the types of housing and lot sizes that are in highest demand. Market reports and studies are used to identify market trends, and they can provide developers with a combination of inferred and fundamental analysis. By focusing too much on inferred or trend analysis, developers can find themselves caught in states of overconfidence that is often not supported by mathematical or cyclical data. On the other hand, main drivers of a fundamental analysis include household formation rates that are offset by single family ownership, wages, jobs, etc. Ultimately, my takeaway has been that opportunity can be found by being conservative and mitigating against the overconfidence of inferred short term analysis. 

Below, I have included two final works, or assignments, that resulted from hours of market research and proper due diligence during my time as a candidate in the MLPD program. The first example is a memorandum that was drafted after classmates and I reviewed a market study conducted for a 172-acre master planned community in Allen, Texas. Below the memo, is a second example of how market research can be applied to real estate development projects. During my first semester of graduate school, three classmates and I were grouped together and tasked with drafting a development pitch supported by market data. My teammates and I concluded that restaurant space met the highest and best use of the site. As of 2019, the area immediately surrounding the site was completely built-out with new student housing, and the owner of the parcel was in an even greater position to service the surrounding neighborhood. Overall, proper market research is a critical part of the due diligence process that is conducted well before a project enters the construction phase.