Discovering Demand

Discovering Real
Estate Demand
For your next project

Discovering Real Estate
Demand
• D. Scott Smith, CCIM
Professor of Real Estate

• Fair Housing, Steering, Blockbusting
It’s a NO NO!

• No magic bullet theory

Demand

“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

Demand

“RETHINK” Real Estate

( first know the established model )

Demand
Traditional Demand Model
• Economic Sectors
Basic + Non Basic Employment

• Economic Base Multiplier
Total Employment / Basic Employment

Demand
Traditional Demand Model
• Location Quotient
Total Industry Local / Total Local Employ
_________________________
Nation Industry Total / National Total Employ

• Standard Industrial Classification
System

• Shift Share Projections

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

Answers the “how” of demand

Demand

• Demand Matrix

• Demand Triggers

Answers the “why” of Demand

Discovering Demand
D2 = Hassle Free
Emotion
Reusable
D2={ H x E x R } Best overall
{BxAxL }
Affordability
{DxI xP }
“Herbal Dip” Location
Demographics
Indicators
Psychographics

Demand
Demand Matrix

• Demographics
Who will buy it?
• Psychographics
Will they like it?
• Economic Indicators
Will they be able to afford it?

Demand

Demand Trigger #1 - Demographics

Demand
Demographics

•Age
•Sex
•Income
•Location
•Interests

Demand
• Study of characteristics in an
identified market

• Hard facts and external realities

• Census and point of sale driven

Demand
• What are the Demographics
of the Room?

Demand
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?

Demand

Demand Trigger # 2 - Psychographs

Demand
•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

Demand
How is information gathered?

Demand
• Survey method

• Social Interactions

• Data Mining Companies

• Search Engines

Demand
• Values, Attitudes, Lifestyles System

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

•Eight basic market segmentations

Demand
Innovator

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

Demand
Thinkers

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

Demand
Believers

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

Achievers Demand

•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.

Demand
Strivers

•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

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

Demand
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

Demand
Survivors

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

Demand
•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

Demand Trigger # 3
Economic Indicators

Demand
Why Economic Indicators?

•Used as a forecast for local and national
economies.

•Demonstrate when an economy expands
and contracts.

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

Demand
Different Indicators will be
used for:

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

Demand
Several “BIGGIE” Indicators

• Employment
Released on 1st Friday each month
Measures job growth

• Consumer Confidence
last Tuesday of the month
Measures how consumers feel about economy, etc.

Demand
Several “BIGGIE” Indicators
• Gross Domestic Product
Quarterly w/ revisions
Measures how fast or slow and economy is growing

• Consumer Price Index
Monthly following
Measures inflation in retail goods and services

Demand
Economic Indicators as it relates to
Real Estate

•Housing Starts
Monthly
Measures new homes and permits for future homes.

•Existing Home Sales
Monthly
Measures monthly sales of prev. home sales

Demand
•New Home Sales
Monthly
Measures Sales of New Homes

•Weekly Mortgage Applications
Monthly
Measures number of applications to purchase/refi
homes

Demand
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.

Demand
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

Demand
Economics and Statistics Administration http://
www.esa.doc.gov/

Bureau of Labor and Statistics
http://www.bls.gov/bls/newsrels.htm

Demand

Demand Matrix Results
Conclusion

Demand
Putting it together

•Age 35-50
Demand
•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?

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

Demand
For your next project

Thank you!

Discovering Demand

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