Market feasibility studies are used to pinpoint the optimal markets for a product or service, identify competitors and unmet customer needs, and find the potential for growth in the said market. In laypeople terms, these studies provide entrepreneurs and investors with the essential data they need to make a sound business decision.
In the construction industry, lenders and equity providers typically require a market feasibility study to be conducted as part of due diligence. Doing so makes it easier for the entrepreneur to secure the necessary real estate capital and gives all parties involved the peace of mind of knowing that the project’s budget and returns are feasible. Normally, these studies are carried out by professional real estate consultants who know the area they’re operating in like the backs of their hands.
In the following article, expert real estate consultants from VERTEX will answer a few commonly asked questions about market feasibility studies and the crucial role they play in the construction industry. Keep reading to learn more.
How much does a market feasibility study cost?
In California, a typical real estate feasibility study can cost between $6,000 and $15,000 for a commercial or residential development project. The cost is primarily determined by how much time is required for market research.
Key factors include:
1. Project size & sophistication
The larger and more sophisticated the project is, the longer it’s going to take to assess its many elements and determine its long-term position on the market. A study for a major residential complex with a decade-long build-out is naturally going to take longer than a study for a small office structure.
2. Location & project market area
Busy locations and large market areas could require significantly more research time than smaller market segments in less densely-populated locations. The availability of data is a major factor here. Some cities have open data policies that ensure ready access to the necessary information, while others can end up prolonging research times by making the required data difficult to get a hold of.
3. Details needed to form a final opinion
Although quantitative data tends to be relatively simple to obtain in today’s world, the same can’t be said about relevant qualitative information necessary to perform competition analyses, supply and demand analyses, and other crucial elements of a market feasibility study. Collecting this information often takes additional effort and even a boots-on-the-ground approach.
How long should a market feasibility study be?
The number of pages in a market feasibility study shouldn’t be taken into account when assessing its quality. After all, the consultants still need to perform the same amount of research regardless of the length of the final document. Reducing or increasing the number of pages has no effect on the cost of the study.
As a general rule, a well-made feasibility study should:
- Be presented in a straightforward manner that can be understood by a layperson.
- Provide relevant market segment data that closely matches the project.
- Include insightful and actionable recommendations.
Who performs a market feasibility study?
It’s an unfortunate reality that many feasibility studies in the construction industry are poorly done or created by parties that have only an outsider’s perspective on the area or market segment they’re researching. To make matters worse, this information is frequently presented in a non-intuitive manner that’s difficult to understand or apply in practice.
Hiring the right team of construction consultants is therefore essential to obtain a well thought-out study created by experts who are intimately familiar with the area. While these higher quality studies tend to have prices to match, the information they provide is invaluable and can have a far-reaching effect on your project.
