How To Analyze a Commercial Real Estate Market [What To Look For]

The success of a real estate investment often comes down to location, and the market you choose to invest in can make or break a deal.

Picking the next breakout city is really hard to do, but there are a few things you can do to stack the odds in your favor when choosing where you want to invest.

So to help you with the process of trying to find the next hot market, this article walks through the key components of a real estate market analysis, and the things that matter most when deciding where to invest.

If video is more your thing, you can watch the video version of this article here:


There are many different things that make up the demographics of a city, but one of the most important components for real estate investors is the net migration within a market, which reflects the net number of people who move into and out of the area.

Net migration can be one of the most important metrics to track when analyzing a market, since this will tell you both how the population is changing and the magnitude of that population change.

Job growth is one of the biggest things that ends up affecting net migration patterns, since people tend to move where jobs are. Employment concentration is also something investors take a hard look at when analyzing a geographic market, especially if a market is reliant upon the success of only one or two specific industries (or even one or two specific companies).

Employment not only brings people into an area, but also impacts how these people spend within the market, which makes income statistics another metric that’s heavily scrutinized by investors.

For example, the demand for retail space is directly tied to consumer spending, which is directly impacted by income levels and job opportunities in the area.

The demand for industrial space depends on consumer demand for goods, which can fluctuate significantly based on changes to employment.

Incomes also directly impact how much an individual or family can pay to rent a residential unit to live in, directly affecting the overall revenue that multifamily property owners can generate.

Ultimately, investors are looking for markets showing strong net migration patterns, strong job growth, a diverse employment base, and an upward trajectory in incomes that can support a variety of different property types and economic growth.

Supply & Demand Dynamics

On the supply side of things, investors look most closely at the current construction pipeline in a market, since this represents the total square footage or number of units projected to come online within the next 1-3 years.

The construction pipeline is usually broken down into four distinct categories, including proposed projects, planned projects, projects under construction, and newly built properties currently in lease-up, which can give an investor a sense of how much new product is going to be delivered into the market and when that new product is expected to be delivered.

And on the demand side of things, investors will usually focus on three main metrics, which are current vacancy levels, net absorption, and both historical and projected rent growth.

Current vacancy within a market tells an investor the percentage of leasable area that’s not currently occupied, which can provide a helpful snapshot of the supply and demand balance (or imbalance) at the current moment in time.

Net absorption represents the total square footage or number of units in the market that became physically occupied in a given period, minus the total square footage or number of units that became physically vacant in that same period.

And when trying to underwrite projected property performance into the future, net absorption figures will often tell an even clearer story about where the market is headed and what vacancy might look like over the next few years.

Strong positive net absorption serves as an indicator that demand is outpacing supply, and the rate at which demand outpaces supply directly impacts rent growth, which has a huge effect on how investors value commercial real estate.

Overall, when looking at supply and demand dynamics, investors are generally looking for markets with limited new competing supply, tight vacancy rates, strong net absorption figures, and rent growth projections that meet or exceed historical values.

Recent Transactions

Once an investor has a solid grasp on the demographics of the area and the supply and demand fundamentals in the market, the last step involves understanding the current state of the capital markets, specifically investment sales volume and major lease or sale transactions.

On the investment sales side, strong investment volume usually means a larger buyer pool and a more competitive bidding process, which can push pricing significantly when an investor is ready to sell.

And when looking at recent transactions in the market, the biggest deals are often done by the biggest companies, which can leave clues as to institutional interest in the market and what future investment volume might look like.

For example, if an investor is analyzing a deal in a secondary market and finds out that Blackstone just bought a $100 million property down the street, you can bet that BX has spent a significant amount of time building that investment thesis. In addition, it’s very likely that other major institutions are seeing the same things and planning to follow suit.

On the leasing side of things, if an investor is analyzing a deal in a secondary market and Google signs an office lease right down the street, this could have huge implications for office tenant demand. However, this will also likely cause an uptick in demand for multifamily, retail, and industrial real estate in the area, as the need for housing, shopping, and delivery will increase as a result of population growth and increased incomes.

How To Learn More About Real Estate Investment Analysis

If you want to learn more about how to underwrite and value commercial real estate properties, or you just want some pre-built templates to help you analyze deals more efficiently, make sure to check out our all-in-one membership training platform, Break Into CRE Academy.

A membership to the Academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis, you’ll get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and you’ll also get access to the Break Into CRE Analyst Certification Exam. This exam covers topics like real estate pro forma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm.

As always, thanks so much for reading, and make sure to check out the Break Into CRE YouTube channel for more content that can help you take the next step in your real estate career.

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