What Is Market Research in Commercial Real Estate?
There’s a lot of money wrapped up in the commercial real estate market. When it comes to accurate property valuation, market research is a key piece of the equation. Our new blog breaks down what goes into market research for commercial real estate, including market trends and outlook as well as property details—anything that factors into its ultimate value.
Commercial real estate market research is the process of evaluating market conditions, often used to assess whether investing in a particular piece of property is wise or not. It’s an attempt to forecast the profitability of a commercial real estate purchase. As unpredictable as real estate valuation gets a rap for being, with the right commercial real estate data on your side, you can better understand the market and make savvy investments.
Why Is Market Research Important in Real Estate?
Investing in commercial real estate is a transaction that can involve a life-changing amount of money—so it’s important to get it right. Without a clear understanding of how a property’s revenue-generating potential compares with the investment required to purchase the property, it’s tough knowing whether a particular investment is going to pay off.
Commercial real estate market analysis provides clarity so that wise decisions can be made by brokers, developers, investors, appraisers, lenders, property managers, and asset management companies. Understanding what’s expected in terms of commercial real estate market trends adds vital context to the property valuation process.
Some examples of why market research is so important include the following:
Understanding Market Trends & Outlook
The commercial real estate market is anything but static. At the same time, it can be—at least in part—predictable.
Understanding current commercial real estate trends, market conditions, and the forecasted outlook helps paint a three-dimensional picture of real estate value. For example, two of the top commercial real estate trends for 2022 relate to the COVID-19 pandemic and Americans’ eventual return to familiar, in-person office spaces.
Based on where things stand as of this writing, the expectation is that the economy and commercial real estate market will both make progress toward recovery. Less clear is the impact of returning to the office. With many employers adapting and finding benefits to remote work, the demand for commercial office real estate may be diminished. These factors and more are all worth considering when working to determine accurate valuation of commercial property.
Making Sure the Price is Right
Market research all comes down to zeroing on the right valuation. Based on the general market conditions and commercial real estate outlook—as well as property-specific data—the ultimate outcome of market research is the number that comes after the dollar sign.
Whether you’re on the buying or selling side of the table, you want to walk away confident in the decision. Every element of commercial real estate market analysis plays a role in how a property is valued. So, whether you’re trying to identify a price point you can live as a buyer with or set a competitive selling price, it all comes down to data.
How Do You Do Commercial Real Estate Analysis?
Commercial real estate market research and analysis is largely a process of collecting and interpreting a variety of data. It begins with comparative market analysis, which covers how the numbers around supply and demand look in a given area at a given time. Factors like average rental rate and vacancy rates play a role here.
Another layer of analysis comes from comparable property analysis—looking at how similar properties have been priced based on things like basic amenities, specific location, and how the property is used.
Some basic steps of the process include:
- Determining, generally, whether it’s a buyer’s market or a seller’s market
- Understanding a particular area’s demographics, economy, and job market
- Analyzing a city’s ROI for commercial real estate
- Getting to know what kind of community a property is in (quality schools, for example)
- Crunching the numbers around an area’s median listing price, rental income, and occupancy rate
There are a few different places you can gather much of this data, if you’re willing to roll up your sleeves. Typically, investors and developers hire a group of people to create what is called a feasibility study and a due diligence study. These activities can be pricey. Sometimes the companies have employees in-house who create these reports, but most hire these services out. Whether in-house or hired out, having access to great, reliable, up-to-date data will shorten the amount of time it takes to create these reports, lowering the cost. The data will also mitigate their overall risk when it has been verified, updated monthly, and provides information such as comps, building details, and ratings.
The Canyon Data Difference
Gone are the days of buying or selling based on gut feelings. Well, nothing says you can’t do things that way, but why would you want to?
We’ll leave you with this one exceptionally important point: market research is only as useful as it is accurate. If you’ve dealt much with commercial real estate valuation, you know how crucial it is to have data you can trust. How accurate is most of the data out there? Maybe 50%.
And that is what sets Canyon Data apart. Operating at the crossroads of relationships and technology, we’re here to empower you with the timely and actionable information you need to make the right moves. Head to our website now to learn more about how our innovative, proprietary process can empower you with accurate, detailed data to make better, quicker, and smarter moves.