Market Feasibility Studies

Market and Feasibility Studies

Global Valuation performs consulting assignments worldwide. “No assignment is too complex for our experienced consultants.” Regardless of property type or location, our consultants provide thorough market and feasibility studies.

Most of our work involves developing some type of value opinion, i.e. an appraisal. Yet, our clients often call upon our expertise for non-appraisal consulting services. These consulting services range from providing market data to making recommendations about prospective investments.

Consulting is a generic term that encompasses a broad variety of services including:

• Market Studies
• Marketability Studies
• Feasibility Analysis
• Cost-Benefit Studies
• Property Tax Services
• Litigation

Many consulting services require specialized knowledge, skills, study, and experience.

Consulting Services

• Land Use Studies
• Market Studies
• Marketability Studies
• Due Diligence for a client’s acquisition or sale decision
• Operation Audits
• Absorption Analysis
• Risk Analysis
• Portfolio Analysis
• Adaptive Reuse Analyses – i.e., analysis of an existing property’s proposed change of use
• Property Inspections
• Capital Market Analysis
• Arbitration

Our clients rely on our services in several different situations. Some seek input as they make decisions about buying or selling real estate. Some are considering the development or redevelopment potential of a property. Others want help with the financial management and planning of alternative real estate investments. We tailor the specific services performed for a client to the individual circumstances.

Global Valuation provides consulting services for all types of property including:

• Resort Hotels & Amenities
• Theme Parks & Attractions
• Office
• Retail
• Industrial
• Subdivisions
• Special Purpose Property
• Mining
• Alternative Power Plants
• Natural Resources
• Timber
• Senior Housing
• Land Development
• Infrastructure
• Mixed Use

Economics uses the term Market Study broadly. Especially relevant in this industry, market study is a process for the identification and study of the market for a particular economic good or service.

A market study includes market analysis as well as an estimate of capture. Therefore it focuses on the user market for the subject property.

Market Study helps forecast the timing of the proposed property and the amount of demand anticipated. We can help clients considering a proposed improvement under a specific use to make wise decisions. First, we determine whether there is an appropriate level of market support. Only then does it make sense to assess the improvement’s maximum productivity for that use. Finally, a market study will determine key marketing strategies for the subject property.

To measure the market support for the proposed development, Global Valuation will identify the relationship between demand and competitive supply in the defined market area, both now and in the future. This relationship indicates the degree of equilibrium or disequilibrium that characterizes the present market and the conditions likely to characterize the market. Markets are typically in a state of disequilibrium created by market actions. Consequently, there is natural lag in meeting demand and reaching a point of equilibrium because of the time that elapses between identifying a need and developing a property.

Fundamental Concepts

Market Definition and Delineation

At the outset of the market study process, we will identify the product and the market in which it competes. These two tasks are complementary. Identifying and analyzing the product gives us only part of the picture. The next step is Identifying the Primary Market Area (PMA) where the property competes. Then we analyze the characteristics and attributes of the product as well as the sources of demand. From there, it is possible to identify comparable properties in the applicable market.

Demand

Demand reflects the needs, material desires, purchasing power, and preferences of consumers. Therefore, we focus next on identifying the preferences of the consumers likely to use the subject property.

Demographic factors such as age, wealth, and health of the population drive demand. These factors determine the need for and ability to afford industry services.

Competitive Supply

Supply refers to the production and availability of the subject property in the market in which they compete. We work to gather, verify, and analyze relevant market data in the Primary (PMA) and Secondary Market Area (SMA) as we analyze supply.

Market Equilibrium

Theoretically, the supply of and demand for properties move toward equilibrium over the long term.

Trends in Market Activity

Analysts and market participants describe the activity of real estate markets in a variety of ways. An active market is a market characterized by growing demand, a corresponding lag in supply, and an increase in prices. The active market is also referred to as a seller’s market because the sellers of available properties can obtain higher prices. A depressed market is one in which relative oversupply and a decline in prices accompanies a drop in demand. Consequently, we call a depressed market a buyer’s market because buyers have the advantage.

Descriptive terms applied to markets are subject to interpretation. For example, markets are sometimes characterized as strong or weak. High demand and increasing price levels or a large volume of transactions mark a strong market. Low demand and declining prices mark a weak, or soft, market. In addition to weak and strong markets, you may also hear terms including broad, narrow, loose, tight, and balanced or unbalanced.

Levels of Market Analysis

Estimates of demand are formulated differently depending on the level of analysis. In some cases, demand may simply be inferred from current market conditions, or rates of change may be used to develop projections. Gathering extensive market data is critical as we apply sound judgment to forecast demand and make projections.

Next, we consider the perceptions of market participants. This helps us refine the forecast demand estimate and assess the likelihood that current trends will continue. The demand and supply analysis investigates market conditions, both current and future.

Six-Step Market Analysis Process

We follow our Six-Step Market Analysis Process as we develop a market study:

• Step 1: Define the Product (Property Productivity Analysis)
  • Physical attributes
  • Legal and regulatory attributes
  • Locational attributes
• Step 2: Market (Market Area and Competitive Area) Delineation
  • Concepts
    1. Time-distance concepts and standards
    2. Area over which equally desirable substitute properties tend to compare with the subject
• Step 3: Demand Analysis
  • Demand segmentation
    • Identification of characteristics of most probable user (consumer profile)
  • Tastes and preferences: behavioral, motivational and psychological factors
  • Inferred demand analysis
    • Analysis of historical growth and occupancy data
  • Fundamental demand forecast
• Step 4: Supply Analysis (Survey and Forecast of Competition)
  • Existing stock of competitive properties
  • Competitive properties under construction
  • Potential competition
    1. Proposed construction
    2. Probable additional construction
  • Attributes and characteristics of competitive properties
    1. Economic and financial
    2. Locational
    3. Site
    4. Structure
• Step 5: Analyze the Interaction of Supply and Demand
  • Competitive environment
  • Residual demand concepts
• Step 6: Forecast Subject Capture (Market Penetration Concepts)
  • Inferred methods
    • Comparison of subject to general market indicators
      • Comparable property data
      • Secondary data surveys and forecasts
      • Local economic analysis

A market study must answer the following questions:

• Who will the end users be – i.e., renters and guests?
• What are the characteristics of the expected end users? Hold are they? What are their preferences regarding facilities and amenities?
• Does the utility of the proposed improvements, satisfy the requirements of the intended market?
• What is the demand for the proposed units?
• How many end users would use the property (desire)?
• How many potential users can afford it (effective purchasing power)?
• What share of demand is the property likely to capture (capture rate)?
• What is the supply of competitive properties on the market?
• How many competitive units currently exist?
• How many competitive units are planned?
• Are there alternative uses for the property that would provide a higher return on the investment?
• What are the relative risks associated with the alternative uses?

We use the most up-to-date software, publications, surveys, and market data in the valuation and consulting industry to complete and support our market studies.

• Demographic Reports and Maps
• CoStar verified market data
• PWC Real Estate Investors Surveys
• Marshall & Swift Cost Data/Core Logic
• PKF Trends in the Hotel Industry
• Argus Financial Software
• InDesign Report Writing Software
• NIC/Map reports

Feasibility Analysis

This is sometimes referred to as the seventh step in Market Analysis. Now we study the cost-benefit relationship of an economic endeavor and its performance as a capital investment.

Fundamental analysis:

1. Focuses on underlying factors that affect the property’s actual use and its ability to support that use economically.
2. Studies specific sources of demand (demographic, social and economic) for the use of the property. It also analyzes the ability of users to pay for this use. Finally, we assess the ability of the property to meet the needs and desires of those users.

Underlying factors affect the wellbeing of the property and comprise Fundamental Demand. These factors include employment, population, household income, expenditure amounts and preferences, and spatial grow patterns.

Ultimately, a feasibility study helps us draw conclusions about opportunities. Knowing whether taking a certain action is likely to pay off makes it easier to analyze your options. As we perform feasibility studies, we compare costs and benefits to develop an informed opinion of value for proposed land use.

Examples of Market Study assignments follow:

• Kansas Medical Center Hotel, Andover, Kansas. A proposed 123-room upscale extended stay hotel and amenities. The hotel is planned for a 9.7-acre site adjacent to the Kansas Medical Center, a state-of-the-art physician owned hospital.
• City Center, Port St Lucie, Florida. A proposed 240-room full-service hotel; 1,570,000 SF retail, wholesale and office