Commercial Real Estate Encyclopedia
Business Planning >> I. Analyze and Segment the Market
<< Market Segmentation Analysis Competitive Analysis >>

Commercial Property Market Segments

Suggestions
  • Focus on segments with enough depth that leverage your personal and professional strengths.
  • Be creative. You may discover new or underserved segments where you can drive greater value for your clients.
Market Segments

The Commercial Real Estate Market has traditionally been classified along the dimensions of Geography, Property Type, Ownership Type and Occupier/Tenant Type. More often than not, a segment will be defined by two or more classifications. Each of these classifications can be further broken down into even more specific categories.

Commercial real estate transaction types can also be used to segment the market and understand client needs. For example 1031 Exchanges, Build To Suit Leases, and NNN Leases are unique types of real estate transactions that reflect an identifiable clientele that demands a unique set of capabilities and expertise to be served.

These different classifications have evolved for practical reasons. Each geographic area, property type, ownership type, or occupier type may demand a different way of doing business and a different set of resources, skills and knowledge to be properly served.



Commercial Real Estate Market Segments
Geographic Segmentation

Your geographic area would be your lowest common denominator in the world of real estate. In fact, even though there are markets that are not necessarily geographically defined, it is common to use the term "Market" to refer to your geographic market.

There are many parameters that you can use to segment and define your geographic market. They may likely be intuitive, using cities and areas that are common sense to you. However, you may also choose to specify Metropolitan Statistical Areas, Sub-Markets, or a series of cities and zip codes. These more specific geographic definitions are helpful because they correspond to available real estate data and reports.

Depending on your focus, your geographic market segment may be more, or less important. For example, if you focus on industrial leasing, you may have to have frequently tour industrial space with clients, in which case, you will have to have a presence in the market you are serving. However, you may have a particular type of investment practice in which you can service your clients across a far broader region.

Segmentation by Property Type

Different property types have evolved in response to the unique demands of their occupants. These property types include Office, Industrial, Retail, Multi-Housing, and Hospitality. Each type can be further broken down to specific sub-types that reflect the more specific needs of their occupiers or restrictions upon the use of the property.

It is important to keep in mind that the important difference among property types is not limited to differences in their physical structure. The key differences between property types that are important to understand for your business include:

  • Investor/Landlord Objectives
  • Occupier/Tenant Needs
  • Lease Terms
  • Financing
  • Land Use
  • Geographic Concentrations


Above and beyond knowledge of the physical product, these factors have an impact on your business and can lead to a more sophisticated segmentation of your marketplace.

Segmentation by Occupiers/Tenants and Business Type

Commercial tenants historically fall into three main categories that correspond to the three main commercial property types: Office, Industrial, and Retail. However, depending on your particular expertise or region, the focus could be on a business sector such as law firms, automobile dealers, health care, or call centers. Within each of these perspectives lies needs and market segments as dynamic and diverse as the economy itself.

Although employee count, logistical needs, or desired traffic counts and demographics are all important factors for tenants, it can be helpful to delve deeper into the market and identify local economic trends and specific industries that can lead you to uncover new market segments. Understanding factors such as vacancies, migration and employment can help evaluate specific market segments and determine if they are in growth or decline.

Occupiers from different industries or business categories may have unique needs, requirements, and strategies that need to be specifically addressed and understood. These may prove to be worthy market segments. Fortunately, there is data and software available to help you identify, segment, and pursue occupiers on a more sophisticated level.

An overwhelming amount of data is available on businesses and tenants which allows identification and classification of occupiers in your market space. The more common data fields include addresses, NAICS codes, and employee counts. This can help identify, prioritize, and evaluate strategic segments and opportunities.

Segmentation by Real Estate Ownership

Property Ownerships can be segmented into more specific categories. These include Investors, Developers, and Owner-Occupiers. Properties may be owned by the government, a private entity, or owned by the bank. The key difference in these ownership types are why they own it, what their objectives are, and the underlying capital structure/financing.

Each ownership category can further be broken down into more specific categories. For example, Investors may be either private individuals, or institutional investors. Each has a different way of doing business, a different set of needs, and requires separate skill sets, tactics and strategies to service the business.

Investors might need acquisition or disposition services as well as landlord representation to lease their assets. However, even among investors, the level of service and capabilities required will differ on the size, value and market for the asset. Identifying the owner-user segment can help evaluate sale-lease back business that leads to a lease for the current occupant, and a sale transaction to an investor.

The point of this is to understand that all real estate transactions are not the same. Each segment can generate different types of opportunities, require different capabilities, and demand a different approach. This means that for each underlying segment, there can be a unique, differentiated and targeted value proposition.

Competitive Analysis >>
DISCLAIMER: This website is provided by Opmetric Inc for educational and informational purposes only and should not be considered advice. We make no warranty express or implied as to the accuracy or reliability of information on this website. Information on this website is not guaranteed to be current, complete, or correct. Views expressed in embedded content are not those of Opmetric Inc.
Videos embedded per Youtube Terms of Service. Crepedia℠ is a service mark of Opmetric Inc. copyright © 2021 Opmetric Inc. All Rights Reserved.