The industry of commercial real estate is constantly on the move. Real estate trends are coming and going rapidly, and there’s always something new on the market. One of such most recent innovations is an invaluable determinant for top-grade investments in real estate – the shift-share analysis. It has
quickly become a vital tool for improving decision-making regarding commercial real estate investment.
This type of analysis deals with regional economics. It refers to developing a model that explores an economic and regional growth of an industry to distinguish it from the national GDP. The goal is to recognize the region’s economic dynamics and ascertain whether to invest in commercial real estate in that region or not.
There are various factors and elements to consider when assessing the growth of a region, including determining the dominant regional industry or its absence. The shift-share analysis gives you insights into the region’s economic growth to help realtors recognize the best investment opportunities in a particular area.
Elements of shift-share analysis and their meaning for realtors The economic growth of a particular region is commonly based on:
● The unique mix of industries in the area;
● The pace at which business, industry, and employment trends shift in that region; ● National growth within a given period.
The shift-share analysis is based on these parameters and focuses on regional employment and industrial statistics. Based on that, there are three main elements of shift-share analysis:
● National growth – National level changes are among the most critical determining factors of regional growth and development. A range of national-level indicators and parameters showcase growth in a particular region. If both national-level and regional-level factors are the same, the regional growth will depend on national development and vice versa.
● Different industry types – Each region has a unique mix of industry types that directly determines the overall nation’s growth rate. This mix of different industry types helps
distinguish the growth rates by region by providing insights into the largest, most competitive industries and how their development affects a particular area.
Moreover, that also helps market analysts determine the growth rate of a specific industry, making it easier to identify the most lucrative opportunities from industry to industry and region to region.
● Regional competitiveness – Perhaps the most vital element of shift-share analysis, regional competitiveness tells you all about the performance of a particular industry, such as IT or banking, and how it affects the national average in a specific region. Many different factors can affect it, including population mix, diversity of natural resources, and regional policies.
Now that you have some basic knowledge of shift-share analysis’s main elements, let’s see how it can help real estate businesses forecast demand and supply.
Shift-share analysis helps realtors forecast regional real estate demand.
Realtors tap into the immense potential of the shift-share analysis when they need to assess the regional demand for commercial real estate by particular industries and calculate the current supply in the regional real estate market. The analysis results help real estate businesses forecast the exact regional commercial real estate demand and supply.
The insights this type of analysis provides allow realtors to derive the shift-share for a particular region by following these steps:
● Deciding the best periods for deriving the shift-share analysis of a specific area;
● Assessing the national growth share by calculating the latest growth rates and applying the calculations to particular ranges of industries in the given region;
● Determining the regional industry mix and comparing the latest stats on national industry category growth to the national growth rates;
● Calculating the shift net effect in a particular region by determining local and national industry category growth rates and comparing those rates to determine the impact of local and national industry growth on a specific area.
Gathering data for shift-share analysis
The shift-share analysis requires the most accurate, up-to-date data to provide viable results. To conduct such an analysis, you need a reliable source of top-quality data. Thankfully, the internet is an abundant source of all kinds of information.
You can find the latest data on the national growth rates on various government websites. If you’re looking for information on a particular state or region, government agencies publish such statistics from time to time on state government websites.
As for industry-specific facts and figures, you can check online industry portals and chambers that contain all the statistics and growth figures you need. However, if you’re looking for the latest demand and supply data on property and real estate for a particular industry in different regions, finding a data broker is the best option to get the latest, actionable information.
The shift-share analysis helps real estate businesses determine competitiveness across different industries in different regions.
It’s your go-to tool if you’re considering investing in a specific regional industry. This analysis will provide you with the necessary growth data for that sector compared to the national economy.
In other words, the shift-share analysis will help you identify the best investment opportunities in a particular region by assessing the growth rate of the regional industries.