This article is the first of what we hope will be an ongoing series highlighting Frequently Asked Questions we receive about market feasibility, real estate research, and commercial real estate topics.
“Why don’t I ever see a negative market study?”
It’s one of the common questions we get asked.
The short answer is that when we have negative results to report to a client, we discuss the market situation with the client, and the client generally chooses to have us terminate the study. Instead of a final market report in such situations, we typically write a letter to the client detailing the market conditions that hamper market response to the proposed project.
However, the long answer is that as market analysts, we function best when we are part of your development team assisting in bringing the very best product to the market, not just someone hired “to provide a report.” When we are part of the team, we can work very closely with our clients to avoid having to issue negative reports. We see a market study as more than a rubber stamp – we see it as an opportunity to provide the client with the best strategies to maximize market response and return on investment. When we identify ways that we can improve a property’s market response we present them to the client for consideration.
Some areas that we might suggest tweaking a property to improve market response:
- Floor plan/unit size – very often we see floor plans where market response can be improved by increasing storage space and bedroom size in particular and we provide guidelines to bring the property up to current market standards
- Rent – we occasionally see properties where rent is not a value in the market. In those cases we suggest an appropriate rent. Conversely, we often identify floor plans for which a premium rent can be achieved based on amenities, size, or view. The object is not only to maximize return on investment, but also to balance absorption rates by unit type.
- Unit and project amenities – Depending on the market, the absence of certain amenities can put a property at a serious competitive disadvantage. Our competitive analysis identifies the amenity packages at the most competitive properties in order to best position the property relative to its expected competition.
- Market niche/target market – sometimes, our analysis will identify alternative market niches for a developer to consider in order to better respond to the market.
Working with our clients to maximize a property’s responsiveness to the market is the best way we know to minimize the frequency of issuing negative recommendations. Thus, it becomes even more important that the market study be done early enough in the process to maximize the return on investment by representing the market in the development process. The later we are brought into the process, the less we are able to offer market-based feedback that eliminates costly mistakes before it’s too late to fix them.