The Missing Link

The law of averages says… well… nothing you want to hear, because it is pretty much a misunderstanding of probability. The fact something has not occurred in a series of trials does not necessarily improve the chance of occurrence in the near future.

This realization has application for Assessment Professionals when trying to make stratification decisions based on limited comparable data.

Don’t automatically assume that missing data would surely materialize given just a few more market transactions. That void in the data may not be from missing data at all, but instead could indicate market indifference or even aversion.

For example, imagine your subject retail store contains 80,000 SF and the available array of retail leases and sales shows no transactions involving spaces from 60,000SF to 125,000 SF. This could indicate that trends in store size favor those units smaller than 60,000 SF or larger than 125,000 SF in the current market.

Similarly, if the available data for logistics properties shows no activity for warehouses sized from 125,000 SF to 250,000 SF, that may relate more to drive time for trucks (proximity to gateway or pipeline markets) than to a simple dearth of market transactions.

That void in the data can be informative.

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