The Nine Separate Property Development Sectors

Choosing what property market sector to develop in is the first part of creating your strategy. Here, Steve Chandler outlines the nine property market sectors that you need to consider.

There’s one crucial thing that you need to do before you start down the path of property development.

You have to choose the property market sector that you’ll focus on.

Steve Chandler of the Property Development Institute (PDI) outlines what they are.

Sector #1 – Residential

This is the primary sector that most budding developers understand best. We all live somewhere and you’ve likely had experience getting a mortgage before.

This places you in a good position to understand the challenges a residential buyer faces.

Residential covers a range of properties, including houses, apartments, townhouses and villas.

You also have to consider the potential buyer here. There are owner-occupiers and investors, each having their own needs. An investor’s looking to make as much money as possible. An owner-occupier wants to find something that suits their lifestyle needs that will also appreciate in value. Essentially, they’ll fall in love with the property whereas an investor sees it as an opportunity.

Sector #2 – Commercial

Commercial covers the gamut from huge 20, 40, or 60-storey office complexes through to smaller office buildings.

Again, the difference between investor and owner-occupier comes into play here. An owner-occupier’s less likely to try to buy space in a large office complex. However, they may consider purchasing a small building or a space within it. Investors tend to buy in the large complexes because they can make money from renting out the space.

The key is that you research the market ahead of time to determine what types of buyers you’re dealing with. This can inform your development decisions.

Sector #3 – Industrial

This is a predominantly investor-heavy market. While there are some owner-occupiers in the space, they tend to go for smaller properties. In this sense, it’s very similar to the commercial market.

For example, at the small end of the scale, you have people like mechanics. They need a small industrial space to work from and tend to want to own that space.

Interestingly, there is one big difference between industrial and commercial. Old industrial warehouses often provide the potential for residential development. Their internal style proves very attractive to a certain segment of the market, particularly near the city.

As a result, buying an industrial property near the city could offer more opportunities than you expect.

Sector #4 – Retail

Again, this has similarities to the commercial and industrial markets. It tends to be an investor-heavy market, barring small-scale retail properties.

The thing you’ll notice in this sector is that the size of retail developments changes based on population density. As urban areas focus on high-density living, and retail buildings expand to meet population growth. That’s why you see many shopping malls in major cities building expansions.

This continual expansion occurs because shopping centres are now a required service in some areas.

Simply put, retail follows residential. The size of your development depends on the size of the residential market.

 Sector #5 – Medical

Once again, this is an investor-heavy market. They’re looking to make high returns. However, they’re doing it in a market that’s very specific. You have less flexibility when working in this space.

That means you need to really understand the medical industry and what different users needs are.

Right now, there’s a lot of preference in the market for medical specialists in a private environment. This means a shift away from public hospitals, which could inform your development decisions.

It’s a growing market and there’s money to make in it. However, it’s likely not something you’d get into on a small scale.

Sector #6 – Tourism

The advent of the internet has opened up the whole world. We can see so much more of what’s out there. That results in people wanting to visit new places all of the time. On top of that, you have governments chasing the tourism dollar constantly.

The important thing to remember in this sector is that people travel on different budgets. You have everybody from the backpackers through to the luxury travellers.

This lends a broadness to the tourism property types. They run the gamut from huge resort-style locations through to small motels and hostels.

And you have markets  within markets. For example, caravan parks are increasingly popular. This is a lucrative area for a small-scale developer to get into.

Sector #7 – Recreation

This one’s very similar to tourism. In fact, the two property types are often related, especially in resort towns.

This is where you consider large-scale recreational developments. Things like theme parks, water parks, and other all-day activity developments go into this category.

Such developments follow the tourism developments. People need places to stay near to the recreational attractions they want to visit.

However, you also see merging of the categories. Many recreational developments also incorporate their own hotels, for example.

You need large tracts of land and huge capital investment to get into this sector.

Sector #8 – Aged Care

This is a massively growing market, especially in the western world. The proportion of older people making up the population seems to grow all of the time.

They need looking after, which has given rise to a growing retirement living market.

There are three sub-sectors to consider here. Self-care is the first. This is where someone wants a property that’s near to key facilities. These people often transition into assisted care, which is almost like hostel accommodation.

Then there’s the nursing care level, which has some crossover with the medical category.

These facilities tend to get bought by one agency and managed by another.

Sector #9 – Infrastructure

This is really large scale stuff. And substantial public assets, from roads through to public hospitals, fall into this category.

Typically, such developments require massive funding. That’s why we’re seeing private enterprises enter the space by doing Public Private Partnerships (also known as PPP) with government.

It’s not the market sector that a small or medium-scale developer would consider. However, it’s a possibility that you could move into this sector as your business grows.

Which Type Suits You?

That’s the major question you have to answer before you become a property developer.

You need to have a passion for the sector you choose. You have to want to “own” it and learn about it in every way possible. Markets evolve constantly and you need to stay on top of that evolution.

The real-time data that Archistar Property provides can help with that. Get in touch with our team today to arrange a demo.

This content comes courtesy of Steven Chandler of the Property Development Institute. Steve Chandler is a third generation property developer with over 35 years’ experience. He is a lecturer at two of Australia’s most recognised universities and travels Australia delivering property development training at introductory and advanced levels. Steve has also authored a number of books on building and property development.