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Pure Property Marketing
Pure Property Marketing
MARKETING
COURSE CODE: BLP 4205
Real Estate Space
and Asset Markets
PRESENTATION OUTLINE
Definition of terms
Space market Characteristics
Asset Market Characteristics
Conclusion
References
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DEFINITION OF TERMS
A market :is a mechanism for the voluntary
exchange of goods and services among owners.
Marketing :is a social and managerial process by
which individuals and groups obtain what they
need and want through creating, offering and
exchanging products of value with others Philip
Kotler (1991)
Segmentation : the activity of dividing a broad
available space market ,normally consisting of
existing and potential space clients.
The market for real estate presents a
formidable challenge because the market is
comprised of two inter-related markets - the
market for real estate space and the market for
real estate assets.
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Real Estate Space Market
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Space markets can be categorized
by type of use:
1. Office Space
Class A – Superior quality and location that command the
highest rents
Class B – Highly desirable, but lacking attributes that
would otherwise command top dollar
Class C – Buildings with few amenities but are in good
condition and are modestly priced
Class D – Buildings with few amenities in poor locations and
generally poor condition
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Space markets categories…..
2. Retail Space
Freestanding retail – single tenant buildings
Neighbourhood service centre – serve a relatively small
population within a range of 2km radius often anchored by a
supermarket with other stores providing convenience goods and
personal services for example Parklands Shopping
District shopping centre – serves a larger trade area within a
range of 8km radius with a wider variety of stores often anchored
by a department store . (High Glen Shopping Centre, Entumbane
Shopping)
Regional Centre – serves an area within a 20 km radius often in
the form of enclosed malls and anchored by two or more
department stores (Sam Levy Village) •
Superregional center – serves areas of up to 80km in radius with a
tremendous range of products and services(Bulawayo)
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Space markets categories…..
3. Industrial Space
Warehouse and distribution
Manufacturing and production
Materials processing
4. Agricultural Space
Annual and perennial cropland
Livestock facilities and grazing
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Space markets categories…..
5.Lodging Space (Commercial Residential)
Skyline motels
Convention/business hotels (have convention space) Cresta
Lodge Msasa
Luxury hotels (Meikles, Rainbow, Crown Plaza ,Jameson ,Holiday
Inn)
Resort or destination hotels (Carribea Bay, Elephant Hills)
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Space markets categories…..
6. Residential Space
High density
Medium density
Low density
In all these densities we can find semi-detached, flats, single
storey
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Characteristics of the Space
Market: Demand and Supply
Demand side of this type of market includes
individuals, households, or firms who want to use
space for consumption or production purposes.
Supply side of this type of market includes real
estate owners who “rent” (used as a verb here)
space to tenants.
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Continued……: Rent
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Continued….: Market Rent
Changes
The principle of supply and demand states that
equilibrium price in a market is directly related
to changes in demand and inversely related to
changes in supply.
Market rent, therefore, is directly related to
changes in demand and inversely related to
changes in supply.
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Continued…..: Segmentation
The real estate space market is highly
segmented, meaning that it tends to be local in
nature and specialized by property usage.
Within each segment, or submarket, the same
good may have a different equilibrium price.
Market rent for office space may differ
significantly between commercial in CBD and
commercial in out skates
Market rent for retail space and warehouse
space in the same street of the same city may
differ.
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Segmentation of real estate space
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Continued……: Demand Curve
The typical space market (or submarket) has a
“downward sloping” demand curve.
$25
$20
Real rent
$10
$5
3.5 4 4.5 5 5.5 6 6.5
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Quantity of space in M2
Continued….: “Kinked” Supply
The typical space market (or submarket)
has a “kinked” supply curve.
$25
REAL ESTATE SUPPLY CURVE
$20
REAL RENT
KINK
$15
$10 EXISTING
QUANTITY
$5
3.5 4 4.5 5 5.5 6 18 6.5
Continued……: Where is the Kink?
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Continued…: Why these shapes?
The shape of the demand curve makes sense
when we follow the law of demand where
users will prefer more space when prices are
low than when prices are high.
The shape of the supply curve (kinked) makes
sense when we consider that the amount of
built space is fixed in the short run because:
1. it takes a long time to add new space.
2. existing space lasts a long time.
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Impact of the Kink
Placing the supply and demand curves on
the same graph, we can see the impact of
the kink on equilibrium prices in a
submarket.
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As demand increases from D0 to D1, equilibrium price increases
from about $20 to about $27. If demand continues to increase to
D2, the price remains at $27 as new space is brought online
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suppliers (S2).
Observations
In submarkets with rising long-run marginal
costs (rising land prices make the next
building more expensive than the prior one),
the supply curve is increasing beyond the
existing supply quantity.
In submarkets with falling long-run marginal
costs (the next building is cheaper to
construct than the prior one), the supply
curve is decreasing beyond the existing supply
quantity.
In most countries space submarkets, the
supply curve is flat beyond the existing supply
quantity because the next building probably
costs the same as the previous one (in real
terms).
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Space Market Dynamics:
Before dollarization , the market rent for office space was $27
per square metre per month. For example Sam Levy Village
Early 2009, developers increased supply in anticipation of
increased demand. (S1 to S2)
Demand increased leading to a positive respond to about $20.
Mid 2010, demand fell from D1 to D0 and rents fell to about
$10.
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Real Estate Asset Market
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Characteristics of the Asset
Market:
“Asset market” refers to the market for the
ownership of real estate assets (land and the
buildings on it) rather than the use of space in
real estate assets.
Buyers in this market purchase real estate in
expectation of receiving future cash flows (rent
paid by tenants).
In this sense, the real estate asset market is
really a part of the larger capital market.
The real estate asset market is not segmented
like the space market but rather integrated
meaning that the asset price are quite similar
across the different assets
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Characteristics…..
“PhysicalCapital” = Real physical assets that produce
real goods or services over an extended period of time.
“Financial Capital” = Money.
Physical capital is specific and relatively immobile.
Financial capital is homogeneous and very mobile.
In the real estate asset market, financial capital is used
to purchase physical capital assets.
The real estate space market deals with physical capital.
The real estate asset market deals with financial capital.
Financial capital can quickly and easily flow from asset
to asset.
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CONCLUSION
Therefore with the above discussion it is important to note the
following in brief
Space market involves the usage of real property by third party
rather than the owner. The owner in return would receive rentals.
Whereas, Asset market deals with the real property its ,where it
can change hands through disposal and acquisition.
The distinction between real estate as space and real estate as an
asset is most clear when buildings are not occupied by their
owners.
The needs of tenants and the type and quality of buildings
available determine the rent for real estate space in the property
market.
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Conclusion…………
At the same time, buildings may be bought, sold, or exchanged
between investors. These transactions occur in the asset or
capital market and determine the asset price of space.
There are a number of important connections between these
two markets, and the central objective of this article is to
describe these links.
When space is owned by its occupant, such as occurs with
single-family housing and much of the nation's industrial space,
the notion of two separate markets is no longer applicable.
Purchasing an asset and purchasing the use of space become
one combined decision
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References
1. Philip Kotler, marketing Management Millennium Edition,10 th
Edition , Pearson Custom Publishing 2002
2. Sam Hill and Glenn Rifkin, Radical Marketing (New York),Harper
Business, 1999
3. Jay Conrad Levison and Seth Grodin , The Guerrilla Marketing
Handbook (Boston, Houghton Mufflin,1994)
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