David M' Harrison, Ph'D'

1
Supply and Demand in the Space Market
2
Shape of RE Space Market Supply Curve

• Why might LRMC be Rising?
• Costs more to build the next unit than the last
  one
• Why might LRMC be Falling?
• Costs less to build the next unit than the last
  one

3
Long-run Equilibrium Rent

• Long-run Equilibrium Rent
• Note You need to forecast changes in both
  future demand and future supply, and consider
  than the kink point moves out with increases in
  the current stock of supply.

4
Evaluating Changes in Demand

• Starting in Equilibrium
• Starting with Excess Supply

Notes Notes
5
Evaluating Changes in Demand

• Starting with Excess Demand
• What About LRMC?

Notes Notes
6
House Prices and Inflation
7
More Market Definitions

• Asset (Property) Market
• Vreal estate assets
• Further Delineating Capital Markets
• Public Markets
• Private Markets
• Debt Markets
• Equity Markets

8
R.E. in U.S. Capital Markets
9
Size of U.S. Real Estate Markets
10
Size of U.S. Real Estate Markets
11
The Real Estate System
12
Asset Markets and Property Values

• Commercial property prices are typically quoted
  in terms of Cap Rates

13
Cap Rate Determinants

• Opportunity Cost of Capital
• Growth Expectations
• Risk

14
Market Segmentation

• Space Market
• Segmented due to type and location specificity
• Asset Market
• Generally not segmented. Money is money, and
  financial capital easily flows from one project
  to another.
• Asset prices adjust such that expected returns
  are the same for properties with the same risk,
  across different property market segments

15
The Development Industry

• Development is a creative, entrepreneurial
  process characterized by
• R.E. Development is therefore dealing with the
  dynamic cutting edge of the physical built
  environment.
• This makes development the most cyclical branch
  of the real estate industry.

16
Construction Starts
17
Negative Feedback Loops

• Mechanisms within a system that tend to dampen
  the changes in the system, helping to keep it in
  control, preventing it from spiraling out of
  control.

18
Feedback Loops in the Real Estate System