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Supply and Demand in the Space Market

Supply and Demand in the Space Market. Shape of RE Space Market Supply Curve. Why might LRMC be Rising? Costs more to build the next unit than the last one Why might LRMC be Falling? Costs less to build the next unit than the last one. Long-run Equilibrium Rent. Long-run Equilibrium Rent:

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Supply and Demand in the Space Market

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  1. Supply and Demand in the Space Market

  2. Shape of RE Space Market Supply Curve • Why might LRMC be Rising? • Costs more to build the next unit than the last one • Why might LRMC be Falling? • Costs less to build the next unit than the last one

  3. Long-run Equilibrium Rent • Long-run Equilibrium Rent: • Note: You need to forecast changes in both future demand and future supply, and consider than the “kink point” moves out with increases in the current stock of supply.

  4. Evaluating Changes in Demand • Starting in Equilibrium: • Starting with Excess Supply: Notes: Notes:

  5. Evaluating Changes in Demand • Starting with Excess Demand: • What About LRMC? Notes: Notes:

  6. House Prices and Inflation

  7. More Market Definitions • Asset (Property) Market – • Vreal estate assets • Further Delineating Capital Markets • Public Markets – • Private Markets – • Debt Markets – • Equity Markets –

  8. R.E. in U.S. Capital Markets

  9. Size of U.S. Real Estate Markets

  10. Size of U.S. Real Estate Markets

  11. The Real Estate System

  12. Asset Markets and Property Values • Commercial property prices are typically quoted in terms of “Cap Rates”

  13. Cap Rate Determinants • Opportunity Cost of Capital • Growth Expectations • Risk

  14. Market Segmentation • Space Market • Segmented due to type and location specificity • Asset Market • Generally not segmented. Money is money, and financial capital easily flows from one project to another. • Asset prices adjust such that expected returns are the same for properties with the same risk, across different property market segments

  15. The Development Industry • Development is a creative, entrepreneurial process characterized by… • R.E. Development is therefore dealing with the dynamic “cutting edge” of the physical built environment. • This makes development the most cyclical branch of the real estate industry.

  16. Construction Starts

  17. Negative Feedback Loops Mechanisms within a system that tend to dampen the changes in the system, helping to keep it in control, preventing it from spiraling out of control.

  18. Feedback Loops in the Real Estate System

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