A feasibility 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 studies to understand market demand.
This is driven by a multitude of factors. For example, there is a rise in young professionals wanting to work and live in cultural centers – while baby boomers look to downsize space and reverse flight back to the suburbs.
In this blog post, our market research company will discuss the 5 components we include when conducting an apartment feasibility study for our clients.
What is an apartment feasibility study?
The main goal of a market research feasibility study is to identify the appeal of a specific market or a product or service within a market.
In other words, this type of market research project aims to determine the likelihood of success of a product, service, concept, or business.
The predictive model is built using a step-by-step approach which often compares market potential versus current penetration from the competition.
Market assessments are widely used by development and design-build firms to assess the feasibility of mixed-use space, apartments, or condos.
Why do development firms conduct apartment feasibility studies?
When building new units in a specific geography, a feasibility study is often conducted for two reasons:
- To better educate build-out decisions.
- To acquire financing by proof of demand through a third-party market research firm.
Although many studies commissioned through a feasibility study company like Drive Research are required for funding, an argument can be made to budget for feasibility-like studies in all research and development.
Even if the product or service is a can't-miss, a feasibility study will identify features or benefits to help you best optimize the product or service when going to market.
It is an up-front investment that can save a business thousands if not millions of dollars from launching a poor product or service.
What type of information does an apartment feasibility study collect?
Residential and commercial market research studies aim to collect a number of key statistics.
For this reason, one type of market research study is never enough. It takes a mixed-mode or hybrid approach to collect all of the data that is required to make data-driven decisions.
Key data insights collected in an apartment feasibility study include:
- What are the characteristics of current residents in the designated market area?
- Who are the main competitors in the area? What are their strengths and weaknesses?
- What is the rental rate of competitors in the area?
- What is the market's rental occupancy percentage?
- What is the likelihood residents in the area will choose your apartment complex?
What are the components of an apartment feasibility study?
Feasibility 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 feasibility study you should consider when hiring a market research firm, like Drive Research.
Component #1: Demographic Analysis
Before building new construction, it is 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.
For example, if the population of New York City is on a steady decline throughout the past 3 years, it may not be a suitable location for a new apartment complex.
Collecting data for demographic analyses.
This data can be collected through the purchase of a software package however, the U.S. Census website offers a lot of free demographic data for all geographies. This includes counties and Census tracts.
To understand market demographics, you will want to understand a variety of information about residents in the target market such as:
- Ownership vs. rental ratios
- Age groups
- Number of people in households
- Presence of children
- Household income
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 one 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%, our feasibility studies company finds that apartment complexes will face some difficulty filling units.
In addition to occupancy rates, our apartment feasibility company will also collect amenities for your team.
This includes what competitors units offer such as:
- Community space
- Laundry options
- Kitchen amenities
- Gym or fitness centers
It is 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, our market research company recommends obtaining 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.
For example, this can be done by sorting complexes that offer gyms and fitness centers 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 is not an 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.
To learn more about the benefits of mystery shopping, watch this 60-second video.
Component #4: Online Survey
What better way to understand wants and needs from the target market than to survey them?
When Drive Research conducts a feasibility study for an apartment complex, we include a variety of questions in the online survey component.
Our experts recommend asking about the likelihood to live or move to the area, the 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 such as 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 more quantitative components discussed above.
Are you interested in conducting an apartment feasibility study with our team? Drive Research provides your business with the data it needs to determine the likelihood of success or failure of your new development project
Contact us through any of the four ways below:
- Message us on our website
- Email us at [email protected]
- Call us at 888-725-DATA
- Text us at 315-303-2040
George is the Owner & President of Drive Research. He has consulted for hundreds of regional, national, and global organizations over the past 15 years. He is a CX certified VoC professional with a focus on innovation and new product management.
Learn more about George, here.