Real Estate Economics and Market Analysis
Core concepts
Understand supply and demand for space and how they set rents and vacancy. Know the four market quadrants (owner-occupied, rental, and their stock/flow combinations) and the difference between space market and asset market. Grasp the property cycle - recovery, expansion, hypersupply, recession - and how construction lags create oversupply. Understand absorption (net and gross), vacancy types (physical, economic, frictional, structural), and rent types (face, effective, contract, market). Learn how cap rates respond to interest rates and risk premia.
Traps
Questions confuse effective rent (net of concessions and free rent) with face rent. Another trap: treating gross absorption as demand - net absorption (occupied space change) is the better demand signal. Watch for the distinction between frictional vacancy (normal turnover) and structural vacancy (persistent mismatch). Don't assume rising interest rates always raise cap rates in the short run; risk and capital flows matter.
Worked example
A submarket adds 200,000 sq ft of new space, demolishes 20,000 sq ft, and occupied space rises by 150,000 sq ft. Net absorption is +150,000 sq ft; net supply is +180,000 sq ft, so vacancy rises because supply outpaced absorption.
Rule of thumb
Net absorption = change in occupied space. If net supply exceeds net absorption, vacancy rises and rent growth stalls.