Using Market Data in Commercial Real Estate Investment Strategies
As a commercial real estate investor, how do you decide on what market areas and asset types to invest in? What data to you use to make your investment decisions?
Utilizing market data should be a key focus in your investment strategy.
In an article in PropModo, formerly CRE.TECH, Steve Bazant asks, “How should CRE investors choose markets to invest in and what data should they consider to drive that decision?”
In analyzing this question, Steve Bazant writes:
I have concluded that there is not a single metric or even combination of metrics that addresses the market selection strategy of every investor. The reason being that every industry and every investor is different, and, therefore, every strategy should be supported by the appropriate data. In other words, the metrics you choose to form your market selection strategy should match the type of commercial property you are investing in.
For the first example, let’s consider an investor who wants to expand her national portfolio of mid-market, multi-family buildings targeting young professionals.
For her investment strategy, it would be prudent to look at which cities have the highest expected growth of real estate price per square foot and the highest expected growth in concentration of millennials.
The scatter plot below suggests targeting San Francisco, Denver, and Silicon Valley.
For the next example, let’s consider an investor who wants to expand his national portfolio of luxury office buildings. The demand for this type of commercial real estate may be driven by wealth and educational achievement.
To find which markets are getting wealthy the fastest, he may want to look at the expected growth of high household income concentration. To find which markets are likely to need more office space in general, he may want to look at the expected increase in the percent of the population with some level of higher education.
The scatter plot below points out that Nashville, Austin, and Houston may be the best markets in which to invest.
For the last example, let’s say that you are Amazon and you want to move one of your factories that assembles basic household items from Asia to the US to cut down on shipping costs. The best place to open a factory may very well be where there is high expected growth in manufacturing workers and low expected real estate costs.
The scatter plot below finds that Nashville, Las Vegas, and Jacksonville may be the most promising markets.
Analyzing national and global market data if investing internationally is crucially important in strategic investing.
Understanding the market data helps you with timing in the market and in developing a competitive advantage.
See Clarus Real Estate and Business Consulting for real estate and business investment strategies.