Estimating The Economic Impact Of Commercial Real Estate

Estimating the Economic Impact of Commercial Real

EstateOVERVIEW

Economic Impact• How is it measured?

• What is included?

How is economic impact measured?

• Total Output - value produced by the final demand dollars cycling through the economy.

• Total Earnings - the amount of total output paid in compensation.

• Total Employment -the number of jobs created or sustained.

What is included?• Direct Impact

• Indirect Impact

• Induced Impact – Effects of households.

Three Rivers Model• What inputs are needed?

• How does it work?

What inputs are needed?• RIMS II Multipliers

• Building Size

• Cost per square foot

• Building occupancy (total or per square foot)

How does it work?• Step 1: Define Region and Order

RIMS II Data

• Step 2: Calculate Final Demand

• Step 3: Apply Multipliers

Step 1: Define Region and Order RIMS II Data

• Define geographic scope– County up to Country

level

• Select data series– Annual– Benchmark

• Choose data type– Type I– Type II

http://www.bea.gov/regional/rims/

Step 2: Calculate Final Demand

Construction Phase

Building SizeX Cost per sf Final Demand

Business Operations Phase

Direct Employment Multiplier÷ Total Employment

Multiplier Calculated MultiplierX $1,000,000 Final Demand per

Employee X # of Employees Final Demand

Step 3: Apply MultipliersStep 1 Step 2 Step 3

Total EmploymentMultiplier/1Million

Total EarningsMultiplier

Total OutputMultiplier

Final Demand

Case Study – ConstructionFinal Demand: 100,000 sf x $150 per sf =

$15 MillionStep 1 Step 2 Step 3

19.3875/1,000,000

0.7593

2.3339

$15,000,000

Case Study – Business Operations

Final Demand: 2.1554/17.6334 x $1,000,000 x 400 = $48 Million

Step 1 Step 2 Step 3

17.6334/1,000,000

0.7903

2.0506

$48,893,600

Advanced Application• Multipliers can be disaggregated

• Total value added can be observed

• Properties can be allocated for different uses

• Sales and employment taxes can be estimated

• Apply it to several projects simultaneously

• Building operations can be considered

Conclusion• Quantifying the economic impact of

commercial real estate development is often ambiguous.

• The Three Rivers Model is a fairly simple way of measuring gross economic impacts.

• It is based in RIMS II data that is highly regarded, easily obtained, and inexpensively purchased.

Publication

Web Address: http://www.ciremagazine.com/article.php?article_id=1330

Contact InformationRyan StokesConsultantConstellation Real Estate

Services4221 Sherrod StreetPittsburgh, PA 15201

Phone: 412-512-1864E-mail:

[email protected]