Dixie & Market Share

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Dixie Phair is regularly reminded that the word “market” describes not only the entirety of her jurisdiction, but also the various segments of commercial real estate within and outside of that district. As Any Municipality County’s Commercial Real Property Analyst, Dixie finds “market” in different phrases related to her daily work: most obviously Market Value, but also Market Share.

Today we find Dixie working with several sales. During her review of that list, while searching for comparable sales for the retail property under analysis, she finds an entry that makes no sense in relation to the others.

Property sales from a similar time period, within a fairly orderly district, range in price per square foot from X to Y; and then along comes a sale at price Z for no apparent reason. We can all relate to Dixie’s experience. I’ve seen this often and you have too!

What causes any sale, but particularly a retail sale, to be an outlier? With a per square foot price well above the others? Location, intended use, brand cycle, or a combination of two (or all three) of these factors may be the answer. The capture of a highly visible location in an area targeted for expansion can go a long way toward establishing brand presence and corresponding market share.

But because the reason is not readily apparent, Dixie knows that (all other elements considered equal) a low or high outlier does not automatically mean the worst or best; there may be other factors involved. After doing further research, Dixie realizes the retail outlier in her list meets the three criteria (location, intended use, and branch cycle). As a result, she decides that particular outlier sale is not a comp at all… as in simply not comparable!

We should keep this example in mind and always do our research. An outlier with a high price per square foot could be the result of a non-realty incentive, and as such, the high price indicated by the outlier should not set the top of the range.