1 Market Analysis for Shopping Centers The Subject and its Location Wayne Foss, DBA, MAI, CRE, FRICS Foss Consulting Group Email: [email protected].

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Market Analysis for Shopping Centers

Market Analysis for Shopping Centers

The Subject and its LocationThe Subject and its Location

Wayne Foss, DBA, MAI, CRE, FRICSFoss Consulting GroupEmail: [email protected]

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Terms and DefinitionsTerms and Definitions

Shopping Center -Shopping Center - A tract of land, under individual or joint real A tract of land, under individual or joint real

estate ownership or control, improved with a estate ownership or control, improved with a coordinated group of retail buildings with a coordinated group of retail buildings with a variety of stores and free parking.variety of stores and free parking.

Types -Types - Neighborhood, Community, Regional, Neighborhood, Community, Regional,

Specialty or theme center, highway related, Specialty or theme center, highway related, strip commercialstrip commercial

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Terms and DefinitionsTerms and Definitions

NeighborhoodNeighborhood Typical tenants - Convenience goodsTypical tenants - Convenience goods

Grocery, Drug, Personal ServicesGrocery, Drug, Personal Services Typical Size and Trade AreaTypical Size and Trade Area

30,000 to 100,000 square feet gross leasable 30,000 to 100,000 square feet gross leasable areaarea

4 to 10 acres of land4 to 10 acres of land 5,000 to 40,000 population, 5 to 6 minute 5,000 to 40,000 population, 5 to 6 minute

driving time; 1 to 1.5 mile primary trade areadriving time; 1 to 1.5 mile primary trade area

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Terms and DefinitionsTerms and Definitions

CommunityCommunity Typical tenants - Convenience goodsTypical tenants - Convenience goods

Junior department store or discount store, Junior department store or discount store, variety store, home improvement centervariety store, home improvement center

Typical Size and Trade AreaTypical Size and Trade Area 100,000 to 300,000 square feet gross leasable 100,000 to 300,000 square feet gross leasable

areaarea 10 to 30 acres of land10 to 30 acres of land 40,000 to 150,000 population, wide variation in 40,000 to 150,000 population, wide variation in

travel time & trade area; 3 to 5 mile primary travel time & trade area; 3 to 5 mile primary trade areatrade area

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Terms and DefinitionsTerms and Definitions

RegionalRegional Typical tenants - General MerchandiseTypical tenants - General Merchandise

at least one full-line department storeat least one full-line department store shopper goodsshopper goods

Typical Size and Trade AreaTypical Size and Trade Area 300,000 to 1,000,000 square feet gross leasable area300,000 to 1,000,000 square feet gross leasable area 30 acres (or more) of land30 acres (or more) of land 150,000 to 400,000 population, 15 to 30 minute 150,000 to 400,000 population, 15 to 30 minute

travel time; 10 to 15 mile primary trade areatravel time; 10 to 15 mile primary trade area

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Terms and DefinitionsTerms and Definitions

Specialty or Theme CenterSpecialty or Theme Center Typical tenants -Typical tenants -

fashion goods, handicrafts, gourmet foodsfashion goods, handicrafts, gourmet foods Typical Size and Trade AreaTypical Size and Trade Area

same size range as neighborhood or community same size range as neighborhood or community centerscenters

may resemble a regional center - 10-15 mile primary may resemble a regional center - 10-15 mile primary trade area, 15 to 30 minute driving timetrade area, 15 to 30 minute driving time

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Terms and DefinitionsTerms and Definitions

Highway relatedHighway related primarily serve passing motoristsprimarily serve passing motorists motels, restaurants, truck stopsmotels, restaurants, truck stops

Strip CommercialStrip Commercial single business along major streetssingle business along major streets serve the community or neighborhoodserve the community or neighborhood may include highway-related usesmay include highway-related uses convenience stores, fast-food restaurantsconvenience stores, fast-food restaurants

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Building TermsBuilding Terms

Gross Leasable Area (GLA)Gross Leasable Area (GLA) The total floor area rented to tenants. It can include The total floor area rented to tenants. It can include

basements and mezzanines. Rent is paid according to basements and mezzanines. Rent is paid according to the GLA occupied, measured from the outside wall the GLA occupied, measured from the outside wall surface to the center of interior partitions.surface to the center of interior partitions.

Gross Floor Area (GFA)Gross Floor Area (GFA) GLA plus all common areasGLA plus all common areas

Gross Sales Area (GSA)Gross Sales Area (GSA) GLA less storage and work areas.GLA less storage and work areas.

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Building TermsBuilding Terms

Common AreasCommon Areas Mallways, parking, and other areas available to all Mallways, parking, and other areas available to all

center customers; not part of GLAcenter customers; not part of GLA

Parking AreaParking Area Includes parking surface, aisles, stalls, islandsIncludes parking surface, aisles, stalls, islands

Parking RatioParking Ratio Parking area to GFA or GLAParking area to GFA or GLA

Parking IndexParking Index number of spaces per 1,000 sf of GLAnumber of spaces per 1,000 sf of GLA

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Types of GoodsTypes of Goods

Convenience GoodsConvenience Goods Groceries, drugs, personal servicesGroceries, drugs, personal services

Specialty GoodsSpecialty Goods infrequent purchases, involves some comparison infrequent purchases, involves some comparison

shoppingshopping

Shopping GoodsShopping Goods hard goods and fashion goods, involves comparison hard goods and fashion goods, involves comparison

shopping, usually large-ticket itemsshopping, usually large-ticket items

Impulse GoodsImpulse Goods small-ticket items, apparelsmall-ticket items, apparel

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Trade Area TermsTrade Area Terms

The Trade Area -The Trade Area - the area from which most people who shop at the the area from which most people who shop at the

center come - is typically divided into three center come - is typically divided into three components: the primary trade area, the secondary components: the primary trade area, the secondary trade area, and the tertiary area.trade area, and the tertiary area. Capture rate different for each areaCapture rate different for each area Differentiation of components made on the basis of:Differentiation of components made on the basis of:

driving time at non-peak hoursdriving time at non-peak hours percentage of total sales and/or customerspercentage of total sales and/or customers

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Primary Trade AreaPrimary Trade Area

Driving timeDriving time geographic area immediately adjacent to the geographic area immediately adjacent to the

property and extending out to a driving time of property and extending out to a driving time of a certain duration.a certain duration.

Total SalesTotal Sales geographic area extending outward from the geographic area extending outward from the

property from which the retail establishment property from which the retail establishment obtains 60 percent to 70 percent of its total obtains 60 percent to 70 percent of its total sales or total customers.sales or total customers.

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Secondary Trade AreaSecondary Trade Area

Driving timeDriving time geographic area immediately adjacent to the geographic area immediately adjacent to the

primary trade area and extending away from the primary trade area and extending away from the site for a predetermined driving.site for a predetermined driving.

Total SalesTotal Sales geographic area from which the retail geographic area from which the retail

establishment obtains an additional 20 to 30 establishment obtains an additional 20 to 30 percent of its total sales or total customers.percent of its total sales or total customers.

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Tertiary Trade AreaTertiary Trade Area

The primary and secondary trade areas The primary and secondary trade areas together should account for 90 percent of the together should account for 90 percent of the retail establishment’s total sales.retail establishment’s total sales.

The tertiary trade area extends beyond the The tertiary trade area extends beyond the secondary trade area the distance at which the secondary trade area the distance at which the customer with the longest driving time resides.customer with the longest driving time resides.

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Unique caveatsUnique caveats

A shopping center does not generate new businessA shopping center does not generate new business Existing, planned, and potential competition must Existing, planned, and potential competition must

be considered.be considered. Market capture of a center is a function of the Market capture of a center is a function of the

trade area and major tenants that the trade area trade area and major tenants that the trade area supportssupports

do not lead new development, but follows the do not lead new development, but follows the direction of community growth.direction of community growth.

Shoppers typically do not drive by a dominate Shoppers typically do not drive by a dominate center to get to another retail facility.center to get to another retail facility.

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Market Analysis ProcessMarket Analysis Process

Step 1: Define the Product (property productivity analysis)Step 1: Define the Product (property productivity analysis)

Step 2: Define users of the property and trade area (Market Step 2: Define users of the property and trade area (Market delineation)delineation)

Step 3: Forecast Demand FactorsStep 3: Forecast Demand Factors

Step 4: Inventory and forecast competitive SupplyStep 4: Inventory and forecast competitive Supply

Step 5: Analyze the interaction of Supply and DemandStep 5: Analyze the interaction of Supply and Demand

Step 6: Forecast subject captureStep 6: Forecast subject capture

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Site and Building AnalysisSite and Building Analysis Location AnalysisLocation Analysis

land use and linkagesland use and linkages subject’s position in the urban growth structuresubject’s position in the urban growth structure preliminary inventory of competitive supplypreliminary inventory of competitive supply rate subject’s competitive position in the trade rate subject’s competitive position in the trade

areaarea

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Retail Property Rating Sheet

24 factors graded

Typical Score (4) equals score of 96

This property is 13% superior to the average (108/96 = 1.13)

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Trade Area CirclesTrade Area Circles Identify subject center typeIdentify subject center type

Gravitational ModelsGravitational Models Reilly’s Law of Retail GravitationReilly’s Law of Retail Gravitation

attractiveness or ability of a center to attract attractiveness or ability of a center to attract customers is proportional to how big it is and customers is proportional to how big it is and how far it is from its competition. Distance has how far it is from its competition. Distance has a greater impact than size.a greater impact than size.

Customer SpottingCustomer Spotting

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Step 3: Forecast Demand FactorsStep 3: Forecast Demand Factors

A) Forecast number of A) Forecast number of householdshouseholds in the primary trade area. in the primary trade area.

B) Estimate B) Estimate averageaverage and and median household incomemedian household income and total and total income in the primary trade area.income in the primary trade area.

C) Estimate the C) Estimate the percentage of income spent on retail percentage of income spent on retail purchasespurchases in the primary trade area. in the primary trade area.

D) Estimate the D) Estimate the percentage of retail purchases typically percentage of retail purchases typically bought at a subject-type centerbought at a subject-type center in the primary trade area. in the primary trade area.

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Step 3: Forecast Demand Factors, con’tStep 3: Forecast Demand Factors, con’t

E) Estimate the potential E) Estimate the potential percentage of retention of salespercentage of retention of sales in a in a subject-type center in the primary trade area.subject-type center in the primary trade area.

F) Estimate sales required per square foot of supportable retail F) Estimate sales required per square foot of supportable retail space in the primary trade area.space in the primary trade area.

G) Repeat Steps 3-a to 3-f for the secondary and tertiary trade G) Repeat Steps 3-a to 3-f for the secondary and tertiary trade areas.areas.

H) Determine total supportable square feet of retail space for H) Determine total supportable square feet of retail space for the primary, secondary and tertiary trade areas.the primary, secondary and tertiary trade areas.

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Step 4: Inventory and Forecast Competitive SupplyStep 4: Inventory and Forecast Competitive Supply

A) Estimate existing competitive supply.A) Estimate existing competitive supply.

B) Analyze existing comparable, competitive B) Analyze existing comparable, competitive rental spacerental space

C) Forecast new competitive spaceC) Forecast new competitive space

New and Developing inventoryNew and Developing inventory

Proposed inventoryProposed inventory

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Step 5: Analyze the Interaction of Supply and Demand

Step 5: Analyze the Interaction of Supply and Demand

Residual demand analysisResidual demand analysis Key factorKey factor

Excess demand -Excess demand - room for additional supplyroom for additional supply ability to raise rentsability to raise rents

Excess supply -Excess supply - high vacancieshigh vacancies soft rentssoft rents

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Step 6: Forecast Subject CaptureStep 6: Forecast Subject Capture

Inferred demand dataInferred demand data comparable property datacomparable property data secondary data surveys and forecastssecondary data surveys and forecasts subject historical capturesubject historical capture local economic analysislocal economic analysis

Fundamental demand methodsFundamental demand methods Share of the MarketShare of the Market location and amenity ratinglocation and amenity rating Current capture ratio methodCurrent capture ratio method

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

SiteSite Size:Size:

Should be large enough to discourage competition, Should be large enough to discourage competition, and to accommodate potential expansionand to accommodate potential expansion

Look for:Look for: Unity of SpaceUnity of Space Frontage for visibilityFrontage for visibility Adequate depth to accommodate buildings and Adequate depth to accommodate buildings and

parkingparking

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Site, con’t:Site, con’t: Land-to-Building ratioLand-to-Building ratio

is the subject typical of the market?is the subject typical of the market? Is thereIs there

Adequate parkingAdequate parking Loading docks that don’t interfere with shop Loading docks that don’t interfere with shop

accessaccess Buffers and setbacks from streets and other land Buffers and setbacks from streets and other land

usesuses

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Site, con’t:Site, con’t: TopographyTopography

is the site level with the surrounding streets for is the site level with the surrounding streets for good visibilitygood visibility

UtilitiesUtilities are all typical utilities in place or readily are all typical utilities in place or readily

availableavailable ZoningZoning

Is the site properly zoned for the existing and/or Is the site properly zoned for the existing and/or future uses?future uses?

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Building Design and LayoutBuilding Design and Layout Building size, materials and qualityBuilding size, materials and quality CanopiesCanopies SignageSignage

Storefronts and monument signStorefronts and monument sign Truck loading docks and circulationTruck loading docks and circulation Floor plan design and flexibilityFloor plan design and flexibility Store size, width, depth, ceiling heightsStore size, width, depth, ceiling heights

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Tenant Mix and Marketing attributesTenant Mix and Marketing attributes Anchor tenant(s)Anchor tenant(s) complementary secondary (shop) storescomplementary secondary (shop) stores Consumer perceptions of the tenant qualityConsumer perceptions of the tenant quality Overall shopping center imageOverall shopping center image

Amenity featuresAmenity features theaters, recreational facilities, landscaping theaters, recreational facilities, landscaping

and/or waterscape features, food courtand/or waterscape features, food court

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Location AnalysisLocation Analysis Key considerationsKey considerations

shoppers tend to move toward the dominant shoppers tend to move toward the dominant centercenter

shoppers will tend not to go through (past) one shoppers will tend not to go through (past) one center to get to another center offering the same center to get to another center offering the same shopping goods and servicesshopping goods and services

visibility from the street is importantvisibility from the street is important best location provides easiest access from the best location provides easiest access from the

trade areatrade area

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Land Use and LinkagesLand Use and Linkages current land use trendscurrent land use trends

age, condition and conformity in the neighborhoodage, condition and conformity in the neighborhood linkages to demandlinkages to demand

where to customers live and workwhere to customers live and work where to customers go for other purposeswhere to customers go for other purposes

i.e.: recreation, entertainment, public transportationi.e.: recreation, entertainment, public transportation

site linkagessite linkages curb cuts, turn lanes, raised street medians, transit curb cuts, turn lanes, raised street medians, transit

stopsstops

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

City/Area Growth PatternsCity/Area Growth Patterns direction of urban growthdirection of urban growth rate of urban growthrate of urban growth

use map to plot ages of neighborhoods to analyze use map to plot ages of neighborhoods to analyze growth trendsgrowth trends

Factors that influence the direction of growthFactors that influence the direction of growth man-made:man-made: major limited access highwaymajor limited access highway natural:natural: rivers, mountainsrivers, mountains political:political: municipal (district) boundariesmunicipal (district) boundaries

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Map of Urban Growth Axis

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Step 1: Define the Product (Property Productivity Analysis)Step 1: Define the Product (Property Productivity Analysis)

Competitive Location RatingCompetitive Location Rating What is the center’s current ability to attract What is the center’s current ability to attract

customers?customers? What is the center’s ability to maintain its market What is the center’s ability to maintain its market

share over time?share over time? Use a rating matrix to help quantify the above Use a rating matrix to help quantify the above

questionsquestions

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Trade Area CirclesTrade Area Circles Identify the center typeIdentify the center type

regional, community, neighborhoodregional, community, neighborhood Identify neighborhood travel routesIdentify neighborhood travel routes Identify the location of the competitionIdentify the location of the competition

Define the trade area in terms ofDefine the trade area in terms of transportation systemstransportation systems direction of community growthdirection of community growth

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Define the trade area in terms ofDefine the trade area in terms of Land Use and demographic factorsLand Use and demographic factors

transportation systemstransportation systems direction of community growthdirection of community growth Existing and projected patterns of residential Existing and projected patterns of residential

developmentdevelopment Household purchasing powerHousehold purchasing power

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Gravitational modelsGravitational models Reilly’s law states that the attractiveness or Reilly’s law states that the attractiveness or

ability of a center to attract customers is ability of a center to attract customers is proportional to how big it is and how far it is proportional to how big it is and how far it is from its competition. Distance has a greater from its competition. Distance has a greater impact than size.impact than size.

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Gravitational modelsGravitational models The formulaThe formula

TAB = T / (1 + STAB = T / (1 + Sa a / S/ Sbb))

Where:Where: TAB = trade area boundary from STAB = trade area boundary from Sbb

T = Travel time between store A and Store B (could use T = Travel time between store A and Store B (could use distance instead)distance instead)

SSaa = Size of Store A (or retail cluster) = Size of Store A (or retail cluster)

SSbb = Size of Store B (or retail cluster) = Size of Store B (or retail cluster)

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

Customer SpottingCustomer Spotting Obtained from survey dataObtained from survey data

Obtain customers home addressesObtain customers home addresses Spot on a mapSpot on a map Calculate Primary, Secondary, and Tertiary Calculate Primary, Secondary, and Tertiary

areasareas Compare number of customers from each areaCompare number of customers from each area

generally 65%, 25%, 10%generally 65%, 25%, 10%

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Step 2: Define users of the Property and Trade Area (Market Delineation)Step 2: Define users of the Property and Trade Area (Market Delineation)

RecapRecap A property can have more than one trade areaA property can have more than one trade area A trade area is defined for a specific land use at A trade area is defined for a specific land use at

a specific locationa specific location Emphasis is on defining linkagesEmphasis is on defining linkages

time - distances relationshipstime - distances relationships Trade areas are formed by urban growth Trade areas are formed by urban growth

patternspatterns Trade area analysis considers competitionTrade area analysis considers competition

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So That’s Market Analysis for Shopping CentersSo That’s Market Analysis for Shopping Centers

Wayne Foss, DBA, MAI, CRE, FRICS, Fullerton, CA USA Email: [email protected]