Feasibility Study

Posted by: Michael  /   Category: Real Estate   /   No Comments

Before any real estate project gets the go ahead a careful account of the positive and negative factors as well as any possible outcome in relation to profit, overall cost and duration has to be had. This is called a feasibility study, a study that takes into account factors such as technology, economy and legislation as well as a host of other particularities any real estate project can offer.

A typical feasibility study follows a set list of steps the first of which is generally market analysis. Total market analysis is when you take into consideration all aspects of the market you are trying to get into. If you’re building a commercial building you should evaluate the space supply, the vacancies and top rents of most commercial buildings on the market. Market segments analysis focuses on certain issues, the demand for a certain size of building for example, or the demand for cheap rent and so on.

The following step is location analysis. Here you must take into consideration both the macro analysis (the city’s center, possible historical center, surroundings) as well as micro analysis (things like the immediate surroundings and the neighborhood you plan to invest in). Macro analysis involves the geographic dimensions as well as political boarder, the population structure and the employment development of the area. Infrastructure and the distance to and from other populated centers as well as the locations natural attractiveness. Micro analyses will focus on things such as taxes and laws of the neighborhood; water, sewage, electricity and gas availability as well as telecommunications. The infrastructure of the site as well as the general public’s opinion on the project is also a factor that should be analyzed.

The usage concept is the next step. Here you take into account what you have already learned and create a first draft of plans. Then you can work out a framework that touches on project financing, property security, communications strategy and organization.

Competition analysis is the next step. Here you should start by finding the most competitive real estate available in your market. Then identify and estimate the competitive positions of your investigated object.

The last step in a basic feasibility study is the risk analysis. The goal of a risk analysis is to clearly identify both preventable and unpreventable risks that can affect a project. These include completion and cost overrun, valuation risk, liquidation risk and trends that can alter the location’s value.

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