Curious how other UW teams assess new supply ratios.
I see a lot of talk about 15% or 20% new supply ratios in markets like ATL, etc., but do you typically look at aggregate new supply, by asset class, by submarket, etc.
I sense there is a lot of gut check, and rules of thumb, but curious to see how others quantify the figures as a risk metric.... any thoughts?
Based on the most helpful WSO content, here's what you need to know about assessing new supply ratios:
Aggregate New Supply:
By Asset Class:
By Submarket:
Gut Check and Rules of Thumb:
Quantifying Figures as a Risk Metric:
Local Market Knowledge:
For more detailed analysis, you might find these sources helpful: - https://propertymetrics.com/blog/how-to-analyze-supply-and-demand-for-a</a>…">Property Metrics on Supply and Demand Analysis - https://www.housingonline.com/councils/national-council-housing-market</a>-…">National Council Housing Market - http://www.appraisalinstitute.org/assets/1/7/Level_C_Fundamental_Market</a>…">Appraisal Institute's Market Analysis - https://www.jchs.harvard.edu/sites/default/files/w07-7.pdf</a">Harvard's Joint Center for Housing Studies
These resources can provide additional frameworks and methodologies for assessing new supply and its associated risks.
Sources: Depth of market and renter pool analysis, Who is buying this stuff? Brokers and PE analyst/associates, What is your opinion where we are in the cycle and how is your firm preparing for the next 12-18 months?, CRE’s Brave New World, Why a lack of advanced modeling techniques? Anyone who uses probabilistic modeling justification for this?
I work in European logistics and we look at submarket because sometimes your macro can be great but your micro will be awful and can trump the macro rating. Since I don’t look at other sectors, it’s specifically logistics. If I was sector agnostic, I’d probably still be sector specific bc I’m not sure something like student-housing relates to logistics for prime locations.
Great example of micro versus macro is Stockholm, Sweden. Largest city, capital, has all the makings of a location I want to buy in. But when you look at Northern Stockholm, there’s mass oversupply, high vacancy, developments in progress, and low demand. Yet somehow South Stockholm has none of this. So we have blacklisted the north and only consider the south.
Tbf, we report to our board with research papers based on macro (country level / comparable to regional level in US) but all of our IC papers and origination is done on a micro level.
Adding to this, we don’t have a firm metric we use like 15% is too high or something. It’s a lot of gut check and discussing with leasing agents about how long comparables have been marketed for. We use data from CBRE’s Erix and sometimes they include, or exclude, stock that’s renewed or in development. So it’s great to use at a high level but I’m not putting my name next to it. Unclear if Costar is better.
Right, so the gut check is what I want to move away from, or refine to where it is quantitative/ measured.
The metrics you list in your example on Stockholm; what was the ratio or key metric that allowed you to conclude there was over supply and low demand; it had to be a function of vacancy, new supply pipeline, etc. so what out put figure or ratio triggered a gut feeling that it was too much?
People talk a lot about ratios and %s of growth, but it's also important to look at the city's structural supply/demand prior to those periods of growth. For EX, Austin, TX, Nashville, and other SE cities are getting hammered by supply, but those who invest in these markets know that more housing (of all kinds) is required in most of those markets, even after the large unit deliveries occur. In Austin, you've got a household/unit ratio of close to 4 people per unit, while Nashville is just shy of 5 per unit, and that's after the '21-22 supply delivers and tapers off. Lots of short-term headlines without considering the larger macroeconomic housing conditions in certain markets.
Eos quis fugiat nobis iusto. Ea nam deleniti quia eaque praesentium officiis. Rerum nostrum reprehenderit aut nemo.
Aut nesciunt est esse necessitatibus sed. Perspiciatis saepe sunt ad consequatur. Ipsam pariatur et ut facere sit.
Cumque ut dolores dolor in. Exercitationem quia voluptas ea quia dolores. Et est ab doloremque asperiores dolorem aut. Quia aliquam nesciunt minus pariatur cupiditate sit optio. Incidunt quia quia qui. Culpa maxime aut tenetur vitae quia inventore molestiae. Ut sunt similique magnam quod vero.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...