development financing decisions. Market analysis is conducted on a specified area, at a particular time to achieve multiple purposes, including to:
determine project feasibility
forecast sales rates (market velocity)
provide insight to public and regulatory reaction to growth
ensure the proposed product matches the land
determine project designs
provide the basis for a marketing plan
provide documentation to support zoning and annexation permit requests
With the information provided by a market analysis, you have much of what you need to pursue land acquisition or development with confidence. It provides the information needed for planning land use, determining the most marketable product, establishing competitive pricing, and identifying niche opportunities. It also highlights any trends that are affecting the real estate market in the development area so that you can anticipate and leverage those trends.
Some developers have used a less extensive type of market analysis commonly referred to as “windshield analysis.” The phrase comes from a developer’s practice of driving through other active developments that are near the targeted area of future development. The developer uses his or her observations of what seems to be successful in these active developments to plan the type and location of a new project. However, the current homebuilding market has become increasingly more complex, making a windshield analysis approach less appropriate and too risky. The resulting observations cannot tell
you with certainty whether successful and profitable. competition and government
other developers and builders in the market are really In addition, decreasing development capital, increasing regulation, and changing population characteristics make
these informal formal market homework that
techniques less effective and raise the need for study. Today’s developer recognizes that market must be completed prior to taking the test. Failure
a more thorough and analysis is much like to do the homework is
not only difficult.
inviting failure but will make every Risks of not completing a thorough
step in market
the development process more analysis can include poor site
selection, difficulties securing financing, and ineffective development only a few. A thorough analysis is always recommended.
Market Analysis Process.
The market analysis process involves studying several areas of the market to form conclusions about the land development opportunities it presents. The study includes economic base, supply and demand, and buyer profile within the targeted area. These areas work together to identify a target market for your project.
Economic Base Analysis.