MMP321 2024 T1 - seminar solutions - Week 2 (Topic 1)

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Deakin University *

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Apr 3, 2024

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MMP321 – Week 2 (Topic 1) Seminar Solutions Week 2 (Topic 1): Real Estate Investment as an Investment Class and Forecasting Property Performance OBJECTIVES: In this seminar, we will learn about how to conduct market analysis for property submarkets. These analytical methods are used in A1. DISCUSSION: Think of a property submarket you would like to invest in and why. Share with the class your reasoning. There is no right or wrong answer. Question 1: Describe the interaction between the space and capital markets and how they influence rents in that property submarket. Are there any unique features in the submarket that differ from what you would expect? See Week 1 Topic 1 Part 2 Question 2: Identify what factors have a long-term impact on the chosen property sub- market. Provide examples of a couple long-term factors that you have identified. 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)

Question 3: Define the three major types of obsolescence and how each can impact on long- term rental and capital growth. Are they relevant to the sub-market that you have chosen? • 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. Question 4: Are space or capital markets segmented? Why? For your particular submarket, are capital markets segmented or would they apply to all property submarkets? • 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 capital market is considered integrated – investors are indifferent as to where/how they get their return as long as the risk/return is the same From answering the above questions, you should now be able to start doing Assessment 1 Part A (5 marks). In the time remaining, Assessment 1 Part A and the accompanying marking rubric criteria will be discussed.

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