Real Estate Operational and Pricing
Introduction
Vacancies, apartments, politics, and industrial real estate all make up the complex world
of real estate, and understanding the operational elements involved with these markets allows
consumers to gain valuable knowledge and insight. Real estate space and real estate assets can be
simplified into the arena of real estate where owners do not occupy the assets.
Politics could slow the entire market down then consumers will have to find other methods to
acquire assets such as moving to locations that are more affordable or waiting until the time to
purchase is more affordable.
RQ1 Are vacancy rents and vacancy rates positively or negatively related?
Theory
The relationship between vacancy rents and vacancy rates is not clear cut and this could
be due to the season, the location, and new construction. Using the framing effect theory,
landlords will bargain with renters and provide more short-term contracts to alleviate the
vacancies (Tsai, 2021). The goal for the landlord is to decrease the number of vacancies by
allowing more transactions of tenants and then landlords can adjust the pricing accordingly (Tsai,
2021). A high vacancy rate could be due to several factors some of which could be the lack of
maintenance being performed, lack of marketing to get qualified tenants, and the cost of the
housing.
A low vacancy rate could be based on location, price, and market demand for the
amenities the asset provides (Guasch & Marshall, 1985). When there are unoccupied units the
asset loses money and that creates a vacancy loss and that loss is potential rental income that will
not be captured in the future (Guasch & Marshall, 1985). Miceli and Sirman (2013) posit that the
theory of efficiency of wages analyzes vacancy rates and if those rates are positive it persuades
Real Estate Operational and Pricing
landlords to reinvest in the asset because if they don't there will be more complaints from tenants
and tenants will start to move out to search for better accommodations.
Research
There have been advancements in differences in academia with respect to housing
vacancies (Yang & Pan, 2022). Studying vacancies relies more on the absence of people and it
can be measured over a period of time (Dimitrakou, 2021). Vacancies are still at the forefront
where laws are being created and scholars are researching especially in the neighborhoods that
house people of color due to the increased vacancies (Harrison & Immergluck, 2021).
A function of the vacancy rate correlates with the change in rents. When there is a market
shift and a higher number of vacancies landlords creatively detail their operating expenses so that
renters can offset the expenses they will incur due to the lack of tenants (Jud et al., 1996). There
is an assumption that vacancy rates will be consistent over time and by observing the rates it will
allow landlords to fluctuate the rent.
Analysis
The housing market looks to stabilize itself and over some time if a house has not been
rented it is determined to be a vacant house (Kato, 2021). An analysis of the housing market
views that price dynamics and how rent is driven by price and for that reason regulations need to
be set to help stabilize the housing market (Wang et al., 2020). The variations in home prices and
people moving for better living conditions spur the rent growth which in turn makes the vacancy
rates fluctuate (Nechayev, 2021). Vacancies are a complex process that changes over time and
affects different locations due to the cost of rent (Yang & Pan, 2022). If vacancies in inner cities
are low there could be a strong indication that there is a high demand for housing So the city and
developers could increase the number of available assets in that area (Yang & Pan, 2022).
Real Estate Operational and Pricing
Conversely, depending on why there is a vacancy rate there would need to be an auto-
correction in the rents that are being affected (Tsai, 2021). If the market price of rent increases
That should cause the vacancy rate to increase but if inflation calls for the rents to increase, then
there should not be a change in the vacancy rates. When there are inefficiencies in the rental
market it can result in more vacancies because the vacancy rate is positively afflicted by a
nominal rent (Tsai, 2021).
RQ2 Apartment demand is directly related to population and the number of persons in the
18-35 age group.
Theory
Consumers are now looking for apartments and checking to see what amenities come
with them. The theory of consumer behavior plays a vital role in how consumers view every
action they take to acquire housing (Sazanova, 2020). Valenčík and Wawrosz (2019) posit that
this behavior that consumers have is a short-term view so it is hard to put every consumer in the
same box. In the search for an apartment a lot of factors come into play with this age group such
as what benefits will they receive, any health needs they may have and will it allow for
educational services if they go to school (Sazanova, 2020).
Friedman (1957) states that consumers take on a long-term strategy and everyone wants
more bang for their buck in terms of how much money would it take to maximize returns.
Developers can take this information from the theory of consumer behavior and ensure they
maximize the needs of this age group. New technology plays a role, and every developer has to
bring in the newest toys so the consumers will flock to the assets.
Real Estate Operational and Pricing
Research
There has be a growing number of people in the 18 to 35 age group renting apartments
due to the lack of income and alternative housing opportunities to make homeownership
affordable (Cohen & Lewin-Epstein, 2021). Apartments that have recreational areas and
common areas allow the residents to get to know each other and provide a sense of community
(Smith & Pinkerton, 2021). The 18 to 35 age group is in a microwave society where they want
everything fast. They want apartments that have pools, open to pets, they want to be able to walk
to different stores for shopping, with all the amenities (J Turner Research, 2016).
Ultimately every apartment that's chosen by this age group boils down to the cost and
location (MagniGet al., 2019). Consumers in this age group want to be at home but feel like
they're on vacation with their laptops, free coffee, and an open cooking area for grilling
(MagniGet al., 2019). In addition, what has become popular is a safe area where the staff is
friendly and contains washers and dryers in the apartment (Smith & Pinkerton, 2021).
Analysis
The demand for apartments is continuously studied to come up with better results as to
why this age group behaves the way they do. Analyzing the demographics of the demand for
apartments consists of the size of the apartments, the rental rates, and how fast the population is
growing (Jud et al., 1996). With rising housing costs and the job market with inflation attached
the consumers in the age group of 18 to 35 are in a predicament because they have to be put in
situations where the amount of money, they have directly correlated to what they can afford and
where they can live. This is a complex issue because the demand for apartments has many
factors that influence an individual from their preference of housing and what lifestyle they live
and their economic conditions.
Real Estate Operational and Pricing
RQ3 What are the political and economic realities associated with rent control policies?
Theory
Market process theory speaks to discovering opportunities that are continually changing
and it is based on knowledge, competition, and entrepreneurship which will cause an individual
to win by sheer ignorance (Kirzner,G2017). The government can institute policies that does not
serve the public so consumers lose (Molden, 2023). When regulation is instituted from a political
standpoint it can stifle the economy and discourage consumers due to the price of apartment
(KirznerG 2018). Discoordination that stems from political regulation can impose restraints to
cause rents to increase (Molden, 2023).
Research
Politicians have stepped in to stop landlords from increasing rent and due to the
controversial nature of rent control there is pushback from landlords (Jud et al., 1996). When
politics are involved it can cause inflation to rise or fall which directly increases or decreases rent
(Tsai, 2021). When rent control policies are put in place there are consequences in the housing
market that have subtle effects over time which can cause a disequilibrium (Brown & Portland
State University, 2021). Rent control while put in place creates a discrepancy and may improve
individuals gaining access to apartments there is a space that is not viewed upon looking at the
economic loss due to the policy that was put in place (Brown & Portland State University, 2021).
When rent control is implemented the long-term effects are that it can create equity issues that
have yet to be addressed (O’Sullivan, 2012).
When these policies are put in effect and the policy is in favor of the tenants they will
tend to stay longer even if the apartment does not have suitable living conditions (Brown &
Portland State University, 2021). An example is a couple moves into a one-bedroom apartment
Real Estate Operational and Pricing
and as time goes on they have a child so the needs of the family dynamic change but since they
have a price discount they will choose to stay where they are (Brown & Portland State
University, 2021). So now that unit that the family has will not be utilized to the maximum
extent because there could be another couple that could best use that space so rent control plays a
vital role in how a space is used effectively.
Analysis
Rent control can has a negative impact on the housing shortages due to making places
more affordable. Landlords can push back on the rent controls that are imposed upon them by
not investing in the improvements for an apartment. Rent control can suppress an area due to the
price and artificially increase rents and other areas due to the spillover. Those individuals that are
affected by rent control will eventually pay in other areas such as the increased costs to do a
housing search when renters may have limitations on what they can afford but if everyone is
allowed to rent there due to the low cost then there is increased competition which makes it
harder to find somewhere to live (Jud et al., 1996).
RQ4 Current demand for industrial real estate has been increasing, what factors are
causing this positive shift in demand?
Theory
There is an outpouring of demand for industrial real estate, and it continues to increase
due to better pricing, consumer spending with e-commerce, warehouse space, government
incentives, and technological advancements (Mooya, 2021). Miceli & Sirmans (2013) state that
using rational choice theory, people weigh the cost and, based on the benefits they will receive,
will make the best choice. When addressing the neoclassical economic theory, the information
Real Estate Operational and Pricing
presented allows the buyers of industrial land to make sound choices to purchase industrial land
(Miceli & Sirmans, 2013).
The industrial industry helps to measure the economic development and growth a country
possesses (Wang et al., 2023). The demand for industrial real estate is increasing due to
government subsidies which impacts e-commerce, purchasing warehouse space and
infrastructure (Qiu et al., 2022). There has been an increasing need for urban areas where
companies like Amazon do not have a huge footprint and to meet the customer’s demands there
has been a new emergence of technology to include online retail so the increase for more
warehouse space has been prevalent (Lin, 2022).
Research
Anderson and Guirguis (2011) posit that with increased warehouses being purchased,
there is a direct correlation between job employment and more productivity in the industrial
space. Additionally, a key factor in the industrial real estate space is it provides employment
opportunities (Eda et al., 2020). The demand for more industrial space has some socioeconomic
benefits that can affect the population, research and development activities, and the price of
industrial land (Pirounakis, 2013).G The demand for industrial real estate is comprised of factors
such as land constraints in the inner cities, government policies, and gauges in economic changes
(Lin, 2012). When new policies arise on land use and rezoning of land to gain a better use those
are factors that change the dynamics of industrial real estate (Eda et al., 2020).
Analysis
The price of land is lower in areas outside of the city limits and that is one of the major
driving forces because investment in industrial land has been increasing (Pirounakis, 2013).G
With technology consistently expanding these high-tech companies require the use of less land to
Real Estate Operational and Pricing
do complex activities at bargain prices. Human interaction changes the way land is being used as
technological progress is evolving mixed with policy changes and social-economic conditions
(Eda et al., 2020). As we assess the future of industrial real estate is crucial to gain an
understanding of the policies and drivers that help to develop the complex ecosystem (Deng
etGal., 2009; Batista e Silva et al., 2013; Zheng etGal., 2015).
Conclusion
Vacancies, apartments, politics, and industrial real estate all make up the complex world
of real estate, and understanding the operational elements involved with these markets allows
consumers to gain valuable knowledge and insight. Real estate space and real estate assets can be
simplified into the arena of real estate where owners do not occupy the assets.
Politics could slow the entire market down then consumers will have to find other methods to
acquire assets such as moving to locations that are more affordable or waiting until the time to
purchase is more affordable.
Real Estate Operational and Pricing
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