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For a property developer, understanding the market is vital for good decision making. With the significant capital involved in a project and the long development process any error of judgement could lead to financial ruin. From the inception of the project through the site selection, planning, building design, financing and construction, the developer should be considering every aspect of the market requirements. By understanding the following points, a developer will be better placed for the market being targeted.

Supply and demand

History has shown that property markets are cyclical in nature. When compared with the erratic performance of the stock market, property trends are more predictable, which makes the forecasting of property supply and demand conditions a lot easier. However, property cycles differ between property types and locations. For example, housing markets tend to relate more closely to the overall growth of the economy and of the local population, while the office market relates more closely to business activity.

Property markets are often considered in terms of the balance between supply and demand, also known as a state of equilibrium, in which the volume of buildings under construction should equal the volume of buildings in demand. Unfortunately, markets cannot maintain stability for any period of time owing to their cyclical nature. It is therefore important to understand where a market stands in relation to its equilibrium state in order to assess future demand. An awareness of these variations in property cycles can be a valuable guide for developers. Reading business articles and talking to people in the real estate industry are ways of maintaining awareness of where the market is sitting.

Evaluation of future demand

As mentioned, demand factors can vary from one property type to another. For example, the level of employment in the area is of primary importance for office and industrial properties, whereas residential demand relies on population growth. An analysis of the office space vacancy rate, employment distribution (as derived from government forecasts and data collected by the Australian Bureau of Statistics), building approvals, buildings under construction and the quantity of similar types of projects in the planning stages can all assist in determining demand.