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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: