I've witnessed during many property management training sessions that, more often than not, real estate investors will take a property use as a given.
For example, if a small multi-tenant office property is on the market for sale, many buyers will assume that there is the demand in the area for office use, contrary what they may have learned in property management training classes.
Otherwise, why would the property have been built?
The First Step in Linkage Analysis
You may already know this from some recent property management training, but just in case:Instead of assuming that there's a need for the office property just because it's there, ask yourself whether the office building property should be there in the first place.
The population characteristics around the property that are identified during the linkage analysis should suggest that there are the customer and employee bases to support an office use and help to identify the type of office uses most likely supported.
Office Property Linkages
Property management training courses show that there are three basic linkages to look at during your linkage analysis of the office building:1. Proximity to Customers: We don’t know specifically who the customers will be, but we can look at the population characteristics to determine if a general office use would be supported.
2. Proximity to Employees: We don’t know specifically who the employees will be, but we can look at the population characteristics, specifically the education levels, age groups and existing travel times to work.
3. Neighboring Uses/Competing Uses: The property is in a growing, redeveloping area that is transitioning from a mixed-use industrial area in a county island to a more professional mixed-use office/retail area.
Because of this activity, competing uses such as more office or retail space is anticipated and encouraged since it will have a positive affect on the redevelopment of the area.
Demographics and Linkage Analysis
After taking a look at the basic linkages of our office building, the next step is to take a look at the demographics.
The following is an excerpt from an actual office building linkage analysis we recently worked on.
The first step was to determine the likely service area radius in miles or drive times. Once the radius was identified the specific population characteristics could be analyzed.
The following steps take a look at various demographic measurements we had at our disposal:
A. 1990 Census Employment Report
1. 75% of the employed travel less than 29 minutes to work. This equates to a 5-mile radius around the property. Within that radius,
2. 60% are employed in occupations that suggest an office use – Clerical, executive, professional and sales.
This data identifies the service area of the property and the likely professional office uses for the property.
B. Business Summary Report
3. 55% are employed in white-collar occupations.
4. 75% of the establishments employ nine or fewer people. This is also the employee occupancy range that the building could accommodate.
C. Office Report
5. The population and employment levels are expected to grow, and the growth in office employment can be extrapolated from this.
D. Demographic Trend Report
6. The 35-64 age groups are expected to increase by 6% - 18% over the next five years.
7. The $50,000 - $150,000 household income categories are expected to increase by 7% - 55%.
8. The average and median household incomes are expected to continue to increase.
The data from the above Reports demonstrates continued population growth in ‘employable’ and ‘entrepreneurial’ age groups.
E. Population Summary Report
9. The holders of associates, bachelors and graduate degrees should continue to increase, which demonstrates the existence and growth of an educated workforce.
F. Income Summary Report
10. This report shows a continued increase in disposable household incomes above $40,000. This increase in disposable income mirrors the demographic, age, and household income growth patterns previously noted.
Using Property Management Training To Think Through Linkage Analysis
Going through these linkage analysis steps, even if you only sketch things out on paper, will help you determine if the office building you're thinking about buying should have really been built in the first place.
If you're the current owner putting the office building on the market, developing a linkage analysis will help keep your marketing laser focused and allow you to foresee questions or objections before they ever come up.
Jeffrey Roark
Common Sense Property Management
How To Rent My House Training Guide
