1 Nov 2012

Real Estate affect growth of any country?

Which economic/social factors affect the size and growth of the real estate sector in a country?

I suspect you would be better off with separate models for the four basic types of real estate. They have different drivers.

Residential: population growth; household income growth; population age distribution; age of existing housing stock; current gap in supply/demand, population movement (eg, rural to city, or region to region)

Industrial, warehouse/distribution: GDP growth, manufacturing sector size/growth/shrinkage, business sector growth, import/export growth, transportation system size and efficiency, current gap in supply/demand.

Retail: population growth, age distribution, disposable income growth, retail consolidation, currrent gap in supply/demand.

Office: GDP growth, growth in office-using sectors (eg, financial services, technology, education, healthcare), shifts in locus of business activity (eg, regional shifts, city-suburban shifts, etc), age of existing inventory, current gap in supply/demand

These are just some general ideas. I don't want to get down into the weeds, but just suggest that these RE sectors can have different rates of growth because their drivers are different, hence you may want to forecast each separately. Also, short term forecasts may be quite different from long term, because of short term disequilibrium. For example, because of the economic downturn right now, there is an oversupply of warehouse/distribution and retail, as evidenced by falling occupancy rates and falling rent rates. 

But over the long term, these are going to recover and track more with population growth and GDP growth. Manufacturing in the US has had a long-term decline, and I doubt that it will ever recover, because of the imbalance of trade of manufactured goods. Public policy may create some correction but is notoriously difficult to predict, so trying to model future changes in public policy is probably not productive.


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