What is Shift Share Analysis in Real Estate?

What is Shift Share Analysis?

Shift share analysis is a method used in economic analysis to determine how much of regional economic growth or decline in a particular industry can be attributed to national trends and how much is due to the unique characteristics or competitive advantages of the local region. In real estate, this analysis can be applied to understand the growth dynamics within the local real estate market compared to broader, national trends.

Here’s how shift share analysis typically works in the context of real estate:

1. National Growth Effect: This component measures how much of the local industry’s growth or decline is due to the overall national economic performance. For instance, if the national real estate market grows by 3%, the expected growth in the local market due to national trends would be calculated based on this figure.
2. Industry Mix Effect: This aspect assesses how much of the local growth can be attributed to the specific types of real estate prevalent in the area, such as residential, commercial, or industrial properties, and how these segments perform nationally.
3. Regional Competitive Effect: This is the most critical component, analyzing how much of the growth or decline is due to the local area’s specific advantages or disadvantages in the real estate market. Factors like local policies, economic conditions, infrastructure, and other local specifics play into this effect.

Shift share analysis helps real estate investors, developers, and policymakers understand the underlying factors driving market changes and can guide investment and development decisions based on the strengths or weaknesses identified in the local market relative to national trends.