Replacement Cost
The cost to build a comparable property from scratch in the current cost environment -- land, construction labor, materials, soft costs, and developer fee. Replacement cost is the natural ceiling on property valuations: when market values rise meaningfully above replacement cost, new construction becomes economically attractive and supply expands. When market values fall meaningfully below replacement cost, no rational developer will build and the existing stock is effectively the only supply. Watching property values relative to replacement cost is a useful signal for both cycle phase and investment opportunity.
Related terms
Absorption Rate · AFFO per Share · Allowed Return on Equity · Alternative Investments · Anchor Tenant · Assets Under Management
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