PROPERTY

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

 The term “space market” is the market for the

usage of real property.
 In this market, tenants exchange rent with
landlords for the right to use land and built
space.
 This market is often called “the rental 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

 “Rent” as noun refers to the price of the

right to use space for a period of time.
 May be measured in $ per square metre
per year (office space), $ per month per
unit (apartments) or various other
methods.
 Determined by the interaction of supply
and demand forces.
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CONTINUED…….: Equilibrium

 When the quantity of space demanded equals the

quantity supplied, the market is in equilibrium.
 The observed rent at equilibrium is called market
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

 On the demand side:

 Users require specific types of space
 Users require specific locations
 On the supply side:
 Buildings are built for specific uses
 Buildings are fixed in location
 Thus, we often talk of “geographic” or “property
usage” submarkets.

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Continued……: Demand Curve
 The typical space market (or submarket) has a
“downward sloping” demand curve.

$25

$20
Real rent

Real Estate Demand Curve

$15

$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?

 The kink occurs at the price equal to the

marginal cost of adding new space to the
submarket.
 The supply function for a competitively
produced product equals the marginal cost
function.
 The marginal cost of built space includes site
acquisition costs, construction costs, and the
developer’s necessary profits.

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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

 The term “asset market” refers to the

mechanism for the voluntary exchange of
ownership of real property.
 In this market, buyers exchange money
with sellers for ownership rights to land
and built space (real estate).
 This market is often called “the property
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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