Breaking Down the Core Principles of a Project Feasibility Analysis
To build or not to build, that is the question. If you’re looking for the answer, then you’ll likely need a project feasibility analysis. Unfortunately, a full assessment and understanding of how a project might work in the real world is a complicated process.
But with the right development manager at the helm, you’ll be able to get a robust understanding of factors such as market demand analysis, site selection, design, cost, rental, debt structure, valuation, marketing strategies and more.
In its most simple form, a property development feasibility analysis generally has three core principles that are essential for determining the success rate of a project.
These core principles differ between commercial and residential projects.
For a commercial feasibility analysis, the three core principles are:
Cost: How much will the inputs cost including land, approvals, consultants, construction, and finance?
Rent: How much rent can you negotiate from your tenants?
Capitalisation Rate: How attractive is the project to potential buyers in terms of tenant strength and location in the current economic climate?
For a residential feasibility analysis, the three core principles are:
Cost: How much will the inputs cost including land, approvals, consultants, construction, and finance?
Sale Prices: What is the market willing to pay for the product, location, and amenity?
Marketing: How will you market the project to the potential buyer? This is particularly important for owner-occupier residential projects.
Once you have the core principles down pat, there’s no shortage of factors that can further benefit the analysis including but not limited to:
Funding structure
Site selection
Pre-commitment due diligence
Design team
Consultant team
Efficient and fit-for-purpose design
Construction procurement methodology
Program efficiency
The devil is always in the detail. But if you find yourself getting caught up in the fine print, you can always take yourself back to the core principles to make sure you don’t lose focus on bringing a clear and succinct project feasibility analysis to the table.