Market Analysis
Market Analysis
The Market Analysis domain tests how you define a competitive submarket, measure supply and demand, and convert market evidence into rent, vacancy, and cap-rate assumptions. It is about evidence, not optimism.
Core rules
- Vacancy rate = vacant SF ÷ inventory SF. Occupied SF = inventory − vacant. Net absorption = change in occupied SF over a period; it can be negative.
- New supply adds to inventory. Preleasing reduces the vacancy impact: 100,000 SF delivered with 60% preleased adds 40,000 SF of vacant space, not 100,000.
- Months of supply = vacant SF ÷ average monthly absorption; rising supply with falling absorption signals tenant-favorable conditions.
- Face rent is quoted; effective rent nets concessions, free rent, TI, and commissions. Compare effective rents when judging market direction.
- Cap rates reflect risk-free rates, growth expectations, liquidity, and asset quality; compression raises values, expansion lowers them.
Worked example
A submarket has 1,000,000 SF inventory and 80,000 SF vacant (8.0%). Over the year, 40,000 SF is delivered and net absorption is 20,000 SF. New occupied SF = 20,000; new vacant SF = 80,000 + 40,000 − 20,000 = 100,000. New inventory = 1,040,000 SF. New vacancy = 100,000 ÷ 1,040,000 = 9.6%. The market loosened even though absorption was positive-deliveries outran demand.
Traps
Confusing gross absorption (total leasing activity) with net absorption; using metro averages for a submarket; ignoring preleasing and lease-up; comparing face rents without concessions; and assuming cap-rate expansion means NOI fell. Also watch redevelopment, obsolescence, and shadow space that is leased but not occupied.