General market factors refers to the overall conditions within a defined market that affect all properties within that market. These factors are influenced by the demographic, economic, and locational characteristics of a market. General market factors change over time with demographic patterns, economic and business cycles, employment trends and government policies, amongst other factors. As an example, rising unemployment in a region could cause office rental rates to decrease and tenant defaults to increase throughout that region. This differs from a property-specific factor such as a particular tenant declaring bankruptcy and thus defaulting on his or her lease.
As an example of demographic changes, a specific neighborhood may experience younger people moving to more popular neighborhoods, leaving behind older residents. Most of these residents subsist on government aid. With many of the higher-earning residents gone, rents and property values will drop in the neighborhood. As you can see, the entire neighborhood, rather than any single property, is affected by the shift in demographics.
An economic or business cycle example is when a town dependent on summer tourists sees a large decrease in visitors as the summer comes to a close. With not much else to do in the town for entertainment or work, most homes remain vacant since they are used only as summer homes. This is more of an extreme case of how a business cycle can affect a market.
Government policies such as an increase in business taxes can cause businesses to cut expenses, including labor. This cost-cutting leads to layoffs and unemployment. As people move to areas where they can find work, areas they are moving from experience a decrease in property values.
Download The Guidebook To IPWM
Learn More About How Investment Property Wealth Management works.
