Market Analysis

SES 0549500
Lecture 1
September 6th
Presented by:
Raymond G. Torto, Ph.D, CRE
Global Chief Economist
CBRE
raymond.torto@cbre.com

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Beware the Boston Accent!

1.

Speaks quickly with nasalized pronunciation

2.

Omits the r sound in -ar combination and adds an r to words that end
with an a:
Car
Mark
Idear

3.

The er sound at the end of the word becomes an uh:

Sistuh

4.

Donuh

The ow sound at the end of the word often becomes an uh (as in cut):
Felluh

5.

Floridar

Tomorruh

When words end in ing, the ng becomes an n sound:

Walkin

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Meetin

Macro Perspective:
Global Economies

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Regional Shares of World Output and Population

Source: IHS Global Insight, Q3 2012

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The Largest 15 Global Economies

2012 Nominal GDP, $USD, Billions
South Korea
Mexico
Spain
Australia
Canada
India
Italy
Russia
Brazil
United Kingdom
France
Germany
Japan
China
United States
$0

$2,000

$4,000

Source: IHS Global Insight as of Q3 2012.

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$6,000

$8,000

$10,000 $12,000 $14,000 $16,000 $18,000

Future GDP Growth by Country

Source: IHS Global Insight as of Q3 2012.

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The Population Growth is Not In the West!!

Source: Lachman, October 2011. and for next slide

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Population Growth by Region

2010
Population

2030
Population

Growth
Population

Number

North America

344 m

401m

+ 16%

57m

Latin America

590m

701m

+18%

111m

Asia

3.9b

4.5b

+15%

600m

Europe

738m

741m
(919m 2050)

3m

1,297m

1,949m

+50%

652m

Middle East
and Africa
Total

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1,423m

We Are Urban

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Population: A Leading Indicator of Real Estate Demand

Globally, population growth entirely urban
Greatest urban population growth in 3 largest countries:
China, India, U.S.
Rapid expansion of moderate-income, middle-class, and
affluent households throughout developing world
Fastest growing regions: Africa, Middle East, Southeast
Asia, South Central Asia
North, Central, and South America growing steadily
Europe: only region facing population decline
Strong consumer demand -- globally
Source: M. Leanne Lachman, Presentation PREA October 2011

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The Growth of the Middle Class: Real GDP per Capita % Change
% Change in Real GDP per Capita from 2007 to 2012
55%

45%

35%

25%

15%

5%

-5%

-15%

Source: CBRE Research, IHS Global Insight as of Q3 2012.

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Europes Tough Property Prospects

In western Europe, replacement demand only

Demolition must match new construction (or high
vacancy will pull rents down)
Eastern Europe needs contemporary product, but
demographics are poor
Strong nursing home need throughout Europe
Look to Japan as mature market model
U.K. and northern Europe in slightly better shape

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Emerging Market Demand

Hypermarkets

Retail malls

Workforce housing

Mortgage finance

Budget hotels

Offices

Warehouses

Middle-class condos

Water and air ports

Tourist facilities

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Institutional Real Estate Size By Region

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A Birds Eye View of CRE: Feb 2012. Prudential Real Estate

CRE Estimates

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Source: Birds Eye.

Where is the Estimated Growth in CRE?

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Source: Birds Eye.

Charts from Rena

Chapter 1

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Course Focus

The role of market research is to analyze the marketrelated determinants of project profitability at the
macro and micro level, help address questions of
market entry and pro-active project design, and
provide the bottom-line rent and absorption figures
that are necessary for the assessment of the financial
feasibility of a particular development.
Rena, p 15

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Residual Land Value Maximization

Source: Rena, p.. 14.

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Factors Driving Potential Income

Figure 1.2 Influences on Project Income-Earning Capacity

Project
Income-Earning
Capacity
Influences

a. General Macro/Metro
Growth Forces

c. Location and
Property-specific
Factors
(Amenities and
constraints)

b. Macro Forces Driving

Specific Space Markets
(e.g., residential, office)

Fixed or time-variant

Time-variant
Effective
Space
Demand

Competing
Space
Supply

Average
Market Prices/Rents
Market Absorption

Determine the average performance

of a real estate market through time

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Location
and
Product
Demand

Consumer/Tenant
Preferences
and
Ability
to Pay

Competing
Space
Supply

Project-specific
Prices/Rents
Project Absorption

Determine the competitive position and performance of a project

within its market at a given point in time

Who Is the Competition? or What is the Market ?

Table 1.1 Market Analysis Components
a. Metropolitan
Growth Analysis

b. Macro Analysis
of Real Estate Markets

c. Micro Analysis
of Development Projects

Unit of
analysis

The metropolitan area

(economic market)
of the project

The project's competitive

market area: the geographic
area funneling effective
demand for a project and
encompassing the locations
of all competing projects

The project and its immediate

and neighborhood environment

Focus of
analysis

Analysis of the sources and

consequences of metropolitan growth. In terms of sources,
emphasis is placed on industry
demand shifts, industrial structure and amenity-induced
migration. In terms of consequences, emphasis is placed on
population, employment, and
income growth paths.

Analysis of historical and

current indicators of market
strength: effective market
demand, competing supply,
prices/rents, and vacancies
by product design type and
consumer segment, if possible

Analysis of location/project
amenities and constraints,
consumer preferences and
ability to pay for location
and project attributes, the
project's competitive
position, and implications
regarding project absorption
and prices

Bottom line
outcome(s)

Type and magnitude of growth

the metropolitan area in
question is experiencing and
will likely experience in the
future; and the set of opportunities
and constraints such growth
patterns present for real estate
development/investment

Forecasts of the time paths

of effective market demand/
net absorption, competing
supply, rents, and vacancies
at the time of sale in the case
of for-sale projects and during
the expected holding period in
the case of income-producing
properties

Location selection/evaluation
and proactive design of a
marketable project; forecasts
of project-specific rent/price
and absorption schedules

Contribution

Facilitates a broad assessment

of demand at the margin for
real estate property types

Facilitates the identification of

product and consumer niches
and the best timing for market
entry; provides inputs for micromarket analysis and financial
feasibility analysis

Provides inputs that are crucial

in evaluating the financial feasibility
and viability of the project

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Disclosures: Raymond G. Torto

The information presented reflects the opinions of Raymond G. Torto based on
sources and data believed to be reliable. Although the information used has been
obtained from sources believed to be reliable, CBRE and CBRE Econometrics
Advisors (formerly Torto Wheaton Research) does not guarantee its accuracy or
completeness. This material is for private use and is for informational purposes
only. Unauthorized distribution or use of the information is strictly prohibited and
all rights to the material are reserved. There is no obligation to update or
supplement this information at any time or in any way. Ray Torto is not a
registered investment advisor.
All contents of this work product and all projections, opinions and forecasts
contained in the presentation are based upon historical events, trends and
econometric models which are subject to material variation and interpretation.
The material is also based upon various assumptions and is subject to significant
uncertainties and contingencies, as well as possible typographical, arithmetic and
other human error, and no representations or warranties, expressed or implied,
as to the accuracy or completeness of the products and publications or any of
their separate contents are made herein. This presentation does not take into
account the investment objectives or financial situation of any particular person or
institution.
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