Why Your Real Estate Business Needs Shift-Share Analysis

Before a realtor decides to invest in a property, they need to gather and analyze incredible amounts of data about the local market and the target real estate. Serious investors are constantly looking for the strongest markets with the most sources and highest potential for economic growth.

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Since realtors are serious business investors, they need assurances that their investment decisions will ensure excellent ROI. That’s where shift-share analysis comes into the picture.

This analytical technique allows investors to ascertain how reliable and lucrative a market is and if they should invest in property in a particular location.

It helps investors make better commercial real estate investment decisions and better understand the pre-purchase process. Let’s briefly review what shift-share analysis is and why realtors need it.

Shift-share analysis formula

A shift-share business is in charge of presenting investors with the national growth calculations relevant to a particular industry.

If investors know how much a specific industry will grow, they can identify the most lucrative investment opportunities in a particular region.

Such businesses implement shift-share analysis into their strategies to forecast leading economic trends and provide investors with accurate and up-to-date data on all asset classes.

As an analytical model, this analysis helps investors find competitive advantages by exploiting unique features of different industries within a region.

It helps them stay on top of national growth trends by tapping into a reliable source of information on how market conditions in different regions may provide more lucrative investment opportunities. However, analysts have to walk the extra mile to accomplish this goal.

They’ve established a unique formula that has quickly become the central postulate of any real estate investment analytical methodology. Let’s delve deeper into what the formula states.

National growth

National growth refers to various metrics that inform investors of the regional growth rate according to the latest national growth trends.

Investors can rely on those metrics to ascertain the growth rate of a particular industry on both national and regional levels.

Industrial mix

The industrial mix explains what industries are the strongest in one region. Once investors know that, they can calculate how much those industries will grow on a national level.

Let’s assume that you’re planning to invest in a lumber company. If you know that the lumber industry is expected to grow, you’ll understand how much ROI to expect.

Regional shift

Regional shift refers to a range of variables that inform investors on what makes a specific region more lucrative than the others.

It gives you insights into the unique advantages of that region and explains the driving factors that cause the growth of specific industries compared to the national level.

How shift-share analysis helps real estate businesses

Now that you know what shift-share analysis implies let’s see how it can help a commercial real estate business.

This analytical methodology allows you to forecast future supply and demand trends across different local and regional economies.

It allows you to understand the unique characteristics of each industry you plan to target with your investments to forecast economic activity.

For example, warehouse and industrial property prices in one region may rise in the next few months. You’ll naturally want to wait until the price suits your budget and investment plans.

If one industry is growing fast, it’s a sure sign that there will be lucrative investment opportunities to count on. In other words, shift-share analysis allows you to identify the most lucrative markets and make targeted investment decisions that will ensure excellent ROI.

The Federal Reserve Board, U.S. Census Bureau, and Bureau of Labor Statistics are all publicly available sources where real estate investors can find the data for shift-share analysis.

Conclusion

Implementing shift-share analysis allows real estate investors to forecast future market shifts for specific property types.

If any local industries grow faster than the national average, that’s a clear sign that it’s time to invest in industry-related properties.

A shift-share business can do all the hard work for you. It can provide you with the facts and figures you need to forecast future demand and growth trends across different regions.

Author Profile

Adam Regan

Deputy Editor

Features and account management. 3 years media experience. Previously covered features for online and print editions.

Email Adam@MarkMeets.com