Video: Understanding Market Leasing Assumptions for Analyzing Commercial Real Estate using ARGUS Enterprise
ARGUS Training Manager – Americas, Jessica Leal, shares her insight about market leasing assumptions to see if a market is healthy or not when investing in commercial real estate, and then she will walk through how this is modeled in ARGUS Enterprise. Watch the video or read the entire transcript below.
“Market Leasing Assumptions,” Transcript
Hello, everyone. My name is Jessica Leal and I’m the training manager for our Americas region. And today we’re going to talk a little bit about market leasing assumptions. Now, this video is serving as a bit of a follow-up to our Understanding Market Leasing Assumptions for Analyzing Commercial Real Estate insights article and the article really discusses some of the most important market leasing assumptions to determine if a market is a healthy market or not when you’e investing.
And so, we’re going to take a look today at ARGUS Enterprise and see,
- “Where do we model some of these assumptions?, such as market leasing rates.
- “Where do we model vacancy and occupancy predictions?”
- “Where do we input that information into ARGUS Enterprise?
So, we’re really going to take a look at that today. So, I’m going to go ahead and open up ARGUS Enterprise, and when I open up ARGUS Enterprise I’m currently already in a property. Now, all of our market assumptions for this particular property are going to be modeled in our market parent tab.
And this is where we can model some of the basic market assumptions, such as inflation rates, general vacancy, and our market leasing assumptions. So, in that inflation sub-tab, this is where we can model our general market expense or CPI inflation rate. We also have the ability to enter in a general vacancy. So, when it comes to an economic buffer or really taking into consideration that economic occupancy for a market that you’re in, you do have the ability to go in and input a general vacancy rate to be subtracted out of your cash flow every year. And then we have our market leasing assumptions. So, in that market leasing sub-tab, this is where you can actually go in and create different profiles to be utilized in your rent roll. So, you can create as many market leasing profiles as you need.
In this case, for this particular property, we needed one for any tenants that are less than 5,000 square feet, and then we needed one for any tenants that are more than 5,000 square feet as well as a lobby market leasing profile. You can model the market leasing terms, so how long these assumptions are going to be for. So that market leasing to lease term, then you can model the renewal percentage, so, the chances of a tenant renewing. You can model downtime, so if a tenant does vacate, how many months of downtime will there be between that tenant and a new tenant? And then you get to model your market leasing assumptions, so the new base rent and the renewing base rent. So, if a new tenant moved in what would the base rent be?, if a tenant renewed what would the base rent be?
And then you have the ability to go in and choose inflation rates that these rental rates will be growing by. Now, it doesn’t just stop at the base rent, you also have the ability to go into model market assumptions for free rent, for tenant improvements, leasing commissions, recovery structures and you can model these market leases and what ARGUS[Enterprise] will actually do is after you input in all of your different market assumptions into these market leasing profiles, you then can go to your tenant rent roll and pick and choose how to utilize them.
So, any of the tenants that are less than 5,000 square feet. You can assign that market leasing profile. Any tenant that is going to be more than 5,000 square feet, you can assign them more than 5,000 square feet market leasing profile. And then you can say what you’re predicting this tenant to do once their lease expires.
So is it going to roll to market ,where it gives you a blended value of all of your assumptions that you modeled in the market leasing profile, or are they going to renew, where it uses your renew market leasing assumptions, or if you say they’re going to vacate it will use all of the new market leasing assumptions that you’ve modeled because a new tenant would be moving in if they vacated.
And that is how you can go in and model just a few of those market leasing assumptions in ARGUS Enterprise. So, we hope that you enjoyed this video. Remember if you have any questions or need any additional training, you can always reach out to us.