Discovering Demand

Discovering Real Estate Demand

For your next project


• D. Scott Smith, CCIM

Professor of Real Estate

• Fair Housing, Steering, Blockbusting

It’s a NO NO!

• No magic bullet theory


“What you need to do to make money, is to focus on where is the demand”

http://video.cnbc.com/gallery/?video=3000072098 2:17

http://video.cnbc.com/gallery/?video=3000072098




“RETHINK” Real Estate

( first know the established model )

Discovering Real Estate Demand Traditional Demand Model

• Economic Sectors

Basic + Non Basic Employment

• Economic Base Multiplier

Total Employment / Basic Employment

Discovering Real Estate Demand Traditional Demand Model

• Location QuotientTotal Industry Local / Total Local Employ _________________________

Nation Industry Total / National Total Employ

• Standard Industrial Classification System

• Shift Share Projections


• Absorption

The rate at which supply is reduced over a given time period

Answers the “how” of demand


• Demand Matrix

• Demand Triggers

Answers the “why” of Demand

Discovering Demand D2 = Hassle Free

Emotion Reusable Best overall

Affordability Location Demographics Indicators Psychographics

D2={ H x E x R }

{ B x A x L }

{ D x I x P }

“Herbal Dip”


Demand Matrix

• Demographics Who will buy it?

• Psychographics

Will they like it? • Economic Indicators

Will they be able to afford it?


Demand Trigger #1 - Demographics


Demographics

•Age

•Sex

•Income

•Location

•Interests


• Study of characteristics in an

identified market

• Hard facts and external realities

• Census and point of sale driven

Discovering Demand

Discovering Demand


• What are the Demographics

of the Room?


Demographics report can be found at

www.putrealestatetowork.com

•According to the room’s demographics, what type of real estate would have the most demand?

•How about in five years?

http://www.putrealestatetowork.com/


Demand Trigger # 2 - Psychographs


•If Demographics are the hard facts,

Psychographs are the sensory component

•Categorization about how you feel about something

•The key to understanding what motivates a customer


How is information gathered?


• Survey method

• Social Interactions

• Data Mining Companies

• Search Engines


• Values, Attitudes, Lifestyles System

VALS http://www.strategicbusinessinsights.com/vals/free/2010-06-VALSbrochure.pdf

•Eight basic market segmentations

http://www.strategicbusinessinsights.com/vals/free/2010-06-VALSbrochure.pdf


Innovator

•Highest incomes, high self-esteem•Expression of taste•Consumer choices are "finer things”•Image importance


Thinkers

•High-resource group and

idealistic•Mature, well-educated •World views, open to change•Practical consumers and rational decision makers


Believers

•Conservative and predictable consumers •Favor American products and brands•Focused on family, community,

and religion •Modest incomes

Discovering Real Estate DemandAchievers

•Motivated by achievement and work-oriented

•satisfaction from jobs

and families

•Politically conservative

•Respect authority and status quo

•Favor established products and services that show off their success to their peers.

Discovering Real Estate DemandStrivers

•Low-resource group,

•Motivated by achievements

•Values very similar to achievers

•Have fewer economic and social, and resources.

•Style is extremely important

•Strive to emulate people they admire

Discovering Real Estate DemandExperiencers

•Median age of 25. •Energy, physical exercise, social activities•Avid consumers, spending on clothing, fast-foods, music, etc.•Emphasis on new

products and services


Makers

•Practical people who

value self-sufficiency. •Focused on the familiar-family, work, and physical recreation•Have little interest in the broader world.•Appreciate practical and functional products


Survivors

•lowest incomes. •few resources •median age of 61 •tend to be brand-loyal consumers


•Use the VALS survey method to determine the Psychographic of the rooms leading demographics.

•Would the Demand analysis change from Demographic to Psychographical analysis?


Demand Trigger # 3

Economic Indicators


Why Economic Indicators?

•Used as a forecast for local and national economies.

•Demonstrate when an economy expands and contracts.


Indicators for Spending, Manufacturing, Housing, Inflation, Productivity, and Employment


Different Indicators will be

used for:

• Office, Retail, Housing, Industrial• Buyer vs. Tenant• Business and Personal Financing


Several “BIGGIE” Indicators

• EmploymentReleased on 1st Friday each monthMeasures job growth

• Consumer Confidencelast Tuesday of the monthMeasures how consumers feel about economy, etc.


Several “BIGGIE” Indicators

• Gross Domestic ProductQuarterly w/ revisions

Measures how fast or slow and economy is growing

• Consumer Price IndexMonthly following

Measures inflation in retail goods and services


Economic Indicators as it relates to Real Estate

•Housing StartsMonthly

Measures new homes and permits for future homes.

•Existing Home SalesMonthly

Measures monthly sales of prev. home sales

Discovering Real Estate

Demand•New Home SalesMonthly

Measures Sales of New Homes

•Weekly Mortgage ApplicationsMonthly

Measures number of applications to purchase/refi homes


Trickle Down Economics

•Each local economy has similar data to each area.

•Determines Local, National, and International Economic conditions and where they are heading with reasonable accuracy.


Economic Indicators can be found at http://www.census.gov/cgi-bin/briefroom/BriefRm

A complete calendar can be found here: http://www.census.gov/epcd/econ/www/indicator_calendar_date.htm

http://www.census.gov/cgi-bin/briefroom/BriefRm

http://www.census.gov/epcd/econ/www/indicator_calendar_date.htm

http://www.census.gov/epcd/econ/www/indicator_calendar_date.htm


Economics and Statistics Administration http://

www.esa.doc.gov/

Bureau of Labor and Statistics

http://www.bls.gov/bls/newsrels.htm

http://www.esa.doc.gov/






Demand Matrix Results

Conclusion


Putting it together

Discovering Real Estate DemandPutting it together

Discovering Real Estate DemandPutting it together

Discovering Real Estate Demand•Age 35-50

•Male•Income-•Location- Texas ( major MSA) •Psychograph- Achievers / Thinkers•Industry- Higher Education•Works in a Office•Housing Type

Where is there a gap and demand?


•Give each Trigger a value from 1-10 and find the average for each location

Location #1

H- 7 D- 4

E- 6 I- 8

R- 5 P- 5

B- 9

A- 7

L- 7 = 6.44


For your next project

Thank you!