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Flashcards in week 1 Deck (6)
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1

describe the interaction between space and capital makrtes

The space market is where rents are established by the interaction of the demand
from tenants and the supply of space to let by investors. (1 mark)
 The capital market is for investors looking to invest in property. (0.5 mark)
 The required return/yield for investors is determined by the return available on
similar risk products in the capital markets. (1 mark)
 Capital markets influence the level of investor supply in the space markets, which in
turn is influenced by demand for space. (0.5 mark)

rents established by demand for tennants and supply of space

capital markets:
yeilds, capraliasation rates and other rates of return are determined by the capital markets

new developments are created in capital markets to satisfy demand from investors and occupiers

actions of occupiers and investorrs and developers are connected but not always aligned and matched explaining why property growth is not linear

2

Identify what factors have a long-term impact on property markets. Provide an example for each factor

Four factors that impact long-term trends in space markets:
Demographic (population growth, age structure of population)
Economic (growth in household income, growth in disposable income)
Social (flexible work hours, work from home agreements)
Environmental (demand for green buildings or carbon footprint)

3

Define the three major types of obsolescence and how each can impact on long-term rental and capital growth

Functional obsolescence – inability of older buildings to function as efficiently as newer ones because their services or layouts are not well suited to today’s users.

Economic obsolescence – loss suffered due to changes in the environment or location of the property, e.g. decline in the neighborhood.

Physical obsolescence – loss due to wear and tear that cannot be cured by regular maintenance. May make building less attractive or more expensive to operate.

4

Which market (space or capital) is segmented? Why?

The space market is segmented because of the immobility of real estate.
Demand side: users usually require a specific type of space in a specific location. Supply side: buildings are usually of a specific type, and owners can’t move land/buildings to a different location.
The asset market is considered integrated. Investors are indifferent as to where/how they get their return as long as the risk is the same

5

You need to estimate the short-term rental growth rate for an industrial property in South West Sydney. You have observed that the vacancy rate in the submarket last year (2017) was 6.5%. However, over the past 15 years the average vacancy rate has been 9.8%. Economists anticipate inflation in 2017 to be 2.1%. Calculate the rental growth rate for 2018 (assume a FACTOR of 0.9 holds for the submarket).

𝑔_𝑡=(𝑣_𝑒−𝑣_(𝑡−1) ) 𝑥 𝐹𝑎𝑐𝑡𝑜𝑟+𝑑
 
ve = 9.8%
vt-1 = 6.5%
Factor = 0.9
d = 2.1%
 
gt = (9.8% – 6.5%) x 0.9 + 2.1% = 5.07%

6

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