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Comparable market rent— the rent that a unit with a
given level of amenities can be expected to achieve based
on prevailing market conditions— is one of the most
critical components of a market feasibility study.
Project rents based on a comparable market rent set too
high can slow absorption and can affect not only initial
absorption, but rent increases expected by the pro forma
in later years. Project rents based on comparable market
rents set too low lose potential income every month from
tenants who would pay more for their units.
At Danter and Associates, we are convinced that the only
valid method of determining accurate comparable market
rent is the combination of the Effective Market AreaSM,
the 100% database , and regression analysis.
The Effective Market Area
The first step in determining appropriate comparable
market rent is determining the appropriate market area.
Setting a proper market area is critical because all the
conclusions are based on detailed analysis of the market
area. Incorrect market areas can lead to inaccurate
conclusions and potential problems. Danter and Associates
identifies the Effective Market AreaSM (EMA), defined as
the smallest geographical area from which a project can
expect to generate 60% to 70% of its support. When we
determine an EMA, we look at four key factors: geography,
demographic analysis, mobility patterns, and area
perceptions:
Geographical factors—rivers, railroads,
freeways, hills, and major arteries often define
neighborhood boundaries. Such geographical factors, which
can play a big part in where people move, are ignored in
radial analyses.
Demographic factors—population and household
trends, housing and income characteristics, differences in
socioeconomic makeup of individual neighborhoods, and
growth figures all are analyzed to help identify the EMA.
Radial analyses cannot account for these characteristics,
and can skew a report by including neighborhoods of vastly
differing socioeconomic makeup.
Mobility factors—interviews with area real
estate professionals, leasing agents and civic officials
are combined with our past experience in determining
mobility patterns. Mobility patterns are predictable, and
while individuals occasionally act counter to prevailing
trends, mobility analysis can help pinpoint where the
majority of tenants for a particular project are the most
likely to come from. Radial analyses cannot make these
distinctions.
Area perceptions—we interview area officials
and real estate professionals to determine area
perceptions. Area perceptions also help determine mobility
patterns and the appropriateness of the development for
its site. |
A Mobility Primer
Radial Mobility (above) consists of
people moving farther from the central city in the same
direction. A family who lives northeast is most likely to
move farther northeast.
Lateral mobility (above) consists of
mobility not conforming to the radial model. It is less
common and housing developments that must depend on
lateral mobility for most of their support must market
aggressively to counter established radial trends.
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