Real Estate Market Valuation and Analysis

Citation

Ooi, J.T.L. (2007), "Real Estate Market Valuation and Analysis", Journal of Property Investment & Finance, Vol. 25 No. 5, pp. 532-533. https://doi.org/10.1108/14635780710776710

Decisions! Decisions! Decisions! Real estate development is all about making decisions such as where to locate the proposed development, how much to pay for the site, is it the right time to buy, when is the best time to start the project, what type of development should be built on the site, and what amenities and facilities to provide? To achieve a successful development, the developer has to get all these decisions right and one wrong decision could result in a costly mistake.

Real estate market analysis assists property developers to make better real estate decisions and in the process, reduce the risks involved. Usually undertaken by external consultants engaged by the developer, the feasibility study serves as an independent confirmation that the proposed project is viable, especially in cases where the developers need to external funding support. Barkham (2002) proposed that:

… market research for property development is a sort of informal hypothesis testing exercise. The developer provides the hypothesis and the research organization tests it  … . Deficiencies in the process are likely to arise either from a reluctance of the developer to allow the hypothesis to be falsified or from some lack of rigour with which the analyst conducts the research.

Two other uses of real estate market research include idea refinement and marketing led research. The former involves researching the likely demand and suggesting value enhancing amendments of the proposed development scheme, while the latter involves establishing the needs, requirements and location of potential occupiers for the purpose of marketing the space.

While the importance of market analysis in the property development process can never be over‐emphasized, there are not many textbooks that have devoted specifically on this topic. Usually, real estate market study is covered briefly in one chapter of a book that covers the various aspects of the real estate development process. Given the limited range of books on this topic, Real Estate Market Valuation and Analysis is a welcome addition. Written by Joshua Kahr and Michael Thomsett, the book covers the fundamental aspects of conducting market analysis for various property types; ranging from single‐family homes and condos, multi‐unit rental property, retail/commercial real estate, office and industrial properties, lodging and tourism industry properties, and mixed‐use real estate. The authors emphasize the importance of understanding local trends rather than relying on regional and national research.

The 245‐page text is divided into nine chapters as follows:

1. 1.

   The essence of analysis.

2. 2.

   Using analysis effectively.

3. 3.

   Valuation of real estate.

4. 4.

   Single‐family home and condo analysis.

5. 5.

   Multi‐unit rental property analysis.

6. 6.

   Retail real estate analysis.

7. 7.

   Office and industrial real estate analysis.

8. 8.

   Lodging and tourism industry real estate.

9. 9.

   Mixed‐use real estate analysis.

Throughout the book, the authors provide useful tools in the form of statistical information, examples, charts and graphs, and case studies. A comprehensive list of more than 175 internet sources for further study is also provided. In addition, there is a supplementary chapter on using geographical information system (GLS) tool in real estate market analysis. The book also comes with a companion CD‐ROM and insert from ArcView®, which is a GIS software tool for the real estate and urban planning industry.

The authors adopted a practical approach to help readers go beyond good rule‐of‐thumb by asking basic questions and think of money invested in the real estate market as real money, and not just as an exercise in the theoretical process of investing. Hence, they linked the value of real estate market analysis to property valuation. Their thesis is that at the core of every real estate decision is the question of value, “How much is it worth?” One whole chapter is devoted to the valuation of real estate. For me, I find the application of the fundamental concepts to specific sectors of the market to be most useful. For example, in the chapter on “Retail real estate analysis”, the authors present why the retail and commercial sector is dissimilar to the other real estate sectors and hence, market analysis on this sector must be performed with completely different underlying assumptions.

For future editions, I would recommend the inclusion of more substantive case studies and sample of actual market study reports on the different sectors. It would also be valuable if a section could be incorporated to cover the major limitations, weaknesses, mistakes or biases introduced in the real estate market analysis. In summary, I have enjoyed reviewing this book and would recommend this book to be added to the list of reference readings for a course on real estate development or real estate investment analysis.