Market analysis is a process for examining the demand for and supply of a property type and the geographic market area for that property type. In its broadest sense, market analysis provides vital information needed to apply the three traditional approaches to value—sales comparison, cost, and income. Further, market analysis is relevant to the final reconciliation of the value indicators derived from the three traditional approaches to value.
A market study is a macroeconomic analysis that examines the general market conditions of supply, demand, and pricing or the demographics of demand for specific area or property type.
A marketability study is a microeconomic study that examines the marketability of a given property or class of properties, usually focusing on the market segment (or segments) in which the property is likely to generate demand. It includes a critique of the subject property, a study of the economic environment in which it is and will be functioning, and an estimate of the subject property’s proportional capture of market demand.
Every market analysis begins with a market study of the broad, or macroeconomic, influences on a subject property. A market study always precedes a marketability study, which uses the data gathered in the market study of a property type in the general market area. The marketability study adds to the market study data and focuses the study on a specific property in a specific market area.
A market analysis is generally divided into one of four levels: A, B, C, or D:
- Level A consists of simple, non-complex properties in a stable market and relies on inferred demand studies. With Level A, timing is now.
- Level B consists of more complex properties in a more volatile market and typically relies on inferred demand analysis. With Level B, timing is probably now.
- Level C consists of complex, large properties in a volatile market and relies on fundamental demand studies. These studies involve a six-step process that includes (1) a property productivity analysis; (2) market delineation; (3) a forecast of fundamental demand; (4) a competitive supply analysis; (5) calculation of marginal demand; and (6) a forecast of subject capture. Timing is an issue.
- Level D is labor intensive and usually not needed in assignments for valuation purposes.