A market analysis study or market assessment study is a fairly popular form of market research. As the growth of urbanization and downtown living continues, many developers are conducting apartment feasibility and condo feasibility studies to understand market demand. This is driven by young professionals wanting to work and live in cultural centers as well as baby boomers looking to downsize space and reverse flight back into cities.
The main goal of a market analysis study is to identify appeal of a specific market or a product or service within a market. Market assessments are widely used by development and design-build firms to assess feasibility of mixed-use space, apartments, or condos. When building new units in a market, a market analysis is either required to better educate build-out decisions or in some cases acquire financing by proof of demand through a third-party market research firm.
Residential and commercial market analysis research aims to collect a number of key statistics. Therefore one type of methodology is never enough. It takes a mixed-mode approach to collect all of the data that is required to make evidence-based and fact-based decisions.
Market analysis studies provide you with the necessary data to make fact-based and evidence-based decisions for your development project.
Although this article will discuss the approach for a market assessment to determine the appeal and demand of residential living units, the components can easily be replicated for any type of feasibility study.
Here are the components of a market analysis study you should consider when hiring a market research firm. We'll use an apartment feasibility study as the example.
Component 1: Demographic Analysis
Before building new construction, it's critically important to know who lives in the area currently. Knowing the characteristics of current residents will help educate a development firm on the target market. This assumes the past is a good predictor of the future.
This data can be collected through the purchase of a software package but the U.S. Census website offers lots of free demographic data for all geographies. This includes counties and Census tracts. To understand market demographics you'll want to understand ownership vs. rental ratios, genders, age groups, number of people in households, presence of children, household income, etc. Believe it or not, you can access the majority of this data free on the Census site through the American Community Survey (ACS) research.
Component 2: Competitive Assessment
This is the most in-depth and valuable piece of the apartment feasibility study. It centers around 1 piece of data: occupancy rate. If the market's rental occupancy stands at 99.5% you can largely assume your project stands a strong chance of success. If the occupancy in the area stands at 72%, you'll likely face some difficulty filling your units.
In addition to occupancy rates, the apartment feasibility company will also collect amenities for you. Things like parking, utilities, pets, community space, laundry options, floors, kitchen amenities, and gym or fitness center options to name a few. It's important to know what other units in the area offer from a competitive standpoint and how they impact occupancy. For example, wouldn't it be helpful to know the units that offer an on-site gym produce a 25% higher occupancy rate than those without one?
The competitive assessment piece of an apartment market analysis study is typically one of the most comprehensive and valuable parts of the report for a developer.
Component 3: Pricing Analysis
The pricing analysis relates directly to the competitive inventory. In addition to collecting amenity-level data, rental rates for units also need to be collected. This is often done through mystery shopping. Because it is impractical to collect square footage and rental rates for every single unit in a market, try to obtain low and high ranges. This provides some context for a range of cost per square foot.
Additional analysis can be completed on amenity value. This is completed by segmenting out amenities and applying a cost per square foot impact. This is done by sorting complexes that offer gyms and fitness centers, for example, and understanding how much more per square foot the rent is at these units. So if those with gyms and fitness centers acquire $0.10 more per square foot on average, you can expect a 750 square foot apartment with on-site gym access to cost $75 more than a unit at another complex without it.
It's not exact science because so many other amenities impact cost per square foot, but it attempts to assign a dollar value in cost per square foot per month for each amenity.
Component 4: Online Survey
What better way to understand wants and needs from the target market than to survey them? Online surveys have made this easier and more affordable than ever before. You can use a panel (pre-recruited group of survey takers) or social media to advertise your survey. You'll want to ask about likelihood to live or move to the area, appeal of specific amenities, and barriers to moving to the market. This type of online survey will give you a better perspective on your market.
Component 5: Stakeholder Interviews
When it comes to a market assessment or apartment feasibility study it makes sense to talk to those who know the market the best. This likely means discussing the project with economic development agencies or downtown committees. These interviews can cover everything from major draws to living in the area to gaps in the market which are not served (specific types of retail or commercial business.) These interviews typically last about 15 to 20 minutes and provide a wealth of anecdotal research to help provide context to the other 4 more quantitative components.
Drive Research is an apartment feasibility study firm and market assessment company located in Syracuse, NY. Questions about an upcoming project? Contact us at firstname.lastname@example.org or call us at 315-303-2040.