Shift Share analysis is one of the recent determinants for investment in commercial real estate and has already become a very important tool in taking decisions relating to commercial properties. Shift share analysis is model that distinguishes how much of a region’s growth is because of national GDP or economical growth and how much growth is there because of dynamics of the region itself where you may be considering investment in commercial real estate.
There are various components that define the growth prospects of a region including presence of industry or its absence. These might be very different from the overall national level picture and hence it makes sense to look the factors that may influence the economic growth of the region, as differentiated from the factors that affect the national level growth.
The Shift Share analysis is based of the fact that the economic growth over a given period of time is a result of:
1 Industry Mix in the region
2 Employment trends change in the region
3 National growth in the same time period
Components of Shift Share Analysis
There are industrial and employment statistics of a region which may differ from national level statistics, apart from differences in other factors. Lets look at the various components of shift share analysis:
1 National Growth : There can be broad policy level changes at the national level which may aid or support growth in a region. There can be national level factors that can cause growth in a given region. But there can be whole lot of difference in factors of a particular region and the growth rate of the region could be much different from the national level growth. If all the other things are same, a national growth rate of, lets say, 5 percent will result in 5 percent growth in any region of the nation. This may or may not be true for all regions of the nation.
2 Mix of Industries or Industry Type: This is basically the growth rate of the industry present in the region in the overall industry’s national growth rate. The industrial mix helps to differentiate one region’s growth from another region’s growth based on the growth rates of their largest industries. For the calculation of the industrial mix effect of a region, the growth rate of a specific industry that is present in the region has to be subtracted from national growth rate.
3 Regional Competitiveness: This is one of the most important components in Shift Share analysis. A given region can perform well above the national average just because of the performance of a particular industry in that region. It could be metals and mining or banking or any other industry. This is indicative of the fact that there are strong undercurrents in favour of that industry in the region and the region enjoys a lot of advantages because of that. The regional competitiveness can be impacted by regional policies, presence of natural resources or even population mix. For example, the growth rate of a particular region which is rich in natural resources can be, lets say, 7 percent but he national level growth is only 5 percent. This means the extra 2 percent growth witnessed by the region can be attributed to natural resources and presence of mining industry.
Shift Share Analysis in Predicting Real Estate Demand and Supply
The Shift Share analysis helps in determining how much of commercial real estate would be needed in a particular region for a particular industry or a set of industries and the supply that exists right now. For example, if there is presence of natural resources and the mining and metals industry is large in a particular region and there is lack of space(property) for the companies engaged in mining and metal extraction in that region, then it can be inferred that there will be higher demand of commercial real estate in the region by that industry type.
How to Derive Share Shift for a Particular Region
The following steps need to be taken to derive the Share Shift figure for a given region:
1 The first step is deciding the region or the area and the time period for which the Shift Share analysis is to be derived
2 Take into consideration the National Growth Share. This can be done by applying the national growth rate to the specific industries in the region or the area.
3 Take into consideration the Industry Mix Effect. This can be done by comparing the national growth rate with the national industry category growth figures
4 Now calculate the Regional Shift Net effect. This can be done by comparing the national industry category growth rate with local industry category growth figures.
Where to Find Data For Shift Share Analysis
To carry out an analysis like this, you need to get hold of whole lot of data. The bright side of the whole exercise is that it is easy to find these data. The national growth figures are published by government from time to time. For a particular region or state, again government data (state government) is available most of the time. For industry specific data. There are industry chambers that can be very helpful Even government of the state can have growth figures for the industries found there. To get data of the supply of real estate and property for a particular industry in a given region, one has to approach a good broker operational in that area.