Market Analysis for Shopping Centers

Terms and Definitions
Shopping Center -
A tract of land, under individual or joint real estate ownership or control, improved with a coordinated group of retail buildings with a variety of stores and free parking.
Types -
Neighborhood, Community, Regional, Specialty or theme center, highway related, strip commercial

Terms and Definitions
Neighborhood
Typical tenants - Convenience goods
Grocery, Drug, Personal Services
Typical Size and Trade Area
30,000 to 100,000 square feet gross leasable area
4 to 10 acres of land
5,000 to 40,000 population, 5 to 6 minute driving time; 1 to 1.5 mile primary trade area

Terms and Definitions
Community
Typical tenants - Convenience goods
Junior department store or discount store, variety store, home improvement center
Typical Size and Trade Area
100,000 to 300,000 square feet gross leasable area
10 to 30 acres of land
40,000 to 150,000 population, wide variation in travel time & trade area; 3 to 5 mile primary trade area

Terms and Definitions
Regional
Typical tenants - General Merchandise
at least one full-line department store
shopper goods
Typical Size and Trade Area
300,000 to 1,000,000 square feet gross leasable area
30 acres (or more) of land
150,000 to 400,000 population, 15 to 30 minute travel time; 10 to 15 mile primary trade area

Terms and Definitions
Specialty or Theme Center
Typical tenants -
fashion goods, handicrafts, gourmet foods
Typical Size and Trade Area
same size range as neighborhood or community centers
may resemble a regional center - 10-15 mile primary trade area, 15 to 30 minute driving time

Terms and Definitions
Highway related
primarily serve passing motorists
motels, restaurants, truck stops
Strip Commercial
single business along major streets
serve the community or neighborhood
may include highway-related uses
convenience stores, fast-food restaurants

Building Terms
Gross Leasable Area (GLA)
The total floor area rented to tenants. It can include basements and mezzanines. Rent is paid according to the GLA occupied, measured from the outside wall surface to the center of interior partitions.
Gross Floor Area (GFA)
GLA plus all common areas
Gross Sales Area (GSA)
GLA less storage and work areas.

Building Terms
Common Areas
Mallways, parking, and other areas available to all center customers; not part of GLA
Parking Area
Includes parking surface, aisles, stalls, islands
Parking Ratio
Parking area to GFA or GLA
Parking Index
number of spaces per 1,000 sf of GLA

Types of Goods
Convenience Goods
Groceries, drugs, personal services
Specialty Goods
infrequent purchases, involves some comparison shopping
Shopping Goods
hard goods and fashion goods, involves comparison shopping, usually large-ticket items
Impulse Goods
small-ticket items, apparel

Trade Area Terms
The Trade Area -
the area from which most people who shop at the center come - is typically divided into three components: the primary trade area, the secondary trade area, and the tertiary area.
Capture rate different for each area
Differentiation of components made on the basis of:
driving time at non-peak hours
percentage of total sales and/or customers

Primary Trade Area
Driving time
geographic area immediately adjacent to the property and extending out to a driving time of a certain duration.
Total Sales
geographic area extending outward from the property from which the retail establishment obtains 60 percent to 70 percent of its total sales or total customers.

Secondary Trade Area
Driving time
geographic area immediately adjacent to the primary trade area and extending away from the site for a predetermined driving.
Total Sales
geographic area from which the retail establishment obtains an additional 20 to 30 percent of its total sales or total customers.

Tertiary Trade Area
The primary and secondary trade areas together should account for 90 percent of the retail establishment’s total sales.
The tertiary trade area extends beyond the secondary trade area the distance at which the customer with the longest driving time resides.

Unique caveats
A shopping center does not generate new business
Existing, planned, and potential competition must be considered.
Market capture of a center is a function of the trade area and major tenants that the trade area supports
do not lead new development, but follows the direction of community growth.
Shoppers typically do not drive by a dominate center to get to another retail facility.

Market Analysis Process
Step 1: Define the Product (property productivity analysis)
Step 2: Define users of the property and trade area (Market delineation)
Step 3: Forecast Demand Factors
Step 4: Inventory and forecast competitive Supply
Step 5: Analyze the interaction of Supply and Demand
Step 6: Forecast subject capture

Step 1: Define the Product
(Property Productivity Analysis)
Site and Building Analysis
Location Analysis
land use and linkages
subject’s position in the urban growth structure
preliminary inventory of competitive supply
rate subject’s competitive position in the trade area

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)

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Trade Area Circles
Identify subject center type
Gravitational Models
Reilly’s Law of Retail Gravitation
attractiveness or ability of a center to attract customers is proportional to how big it is and how far it is from its competition. Distance has a greater impact than size.
Customer Spotting

Step 3: Forecast Demand Factors
A) Forecast number of households in the primary trade area.
B) Estimate average and median household income and total income in the primary trade area.
C) Estimate the percentage of income spent on retail purchases in the primary trade area.
D) Estimate the percentage of retail purchases typically bought at a subject-type center in the primary trade area.

Step 3: Forecast Demand Factors, con’t
E) Estimate the potential percentage of retention of sales in a subject-type center in the primary trade area.
F) Estimate sales required per square foot of supportable retail space in the primary trade area.
G) Repeat Steps 3-a to 3-f for the secondary and tertiary trade areas.
H) Determine total supportable square feet of retail space for the primary, secondary and tertiary trade areas.

Step 4: Inventory and Forecast
Competitive Supply
A) Estimate existing competitive supply.
B) Analyze existing comparable, competitive rental space
C) Forecast new competitive space
New and Developing inventory
Proposed inventory

Step 5: Analyze the Interaction of
Supply and Demand
Residual demand analysis
Key factor
Excess demand -
room for additional supply
ability to raise rents
Excess supply -
high vacancies
soft rents

Step 6: Forecast Subject Capture
Inferred demand data
comparable property data
secondary data surveys and forecasts
subject historical capture
local economic analysis
Fundamental demand methods
Share of the Market
location and amenity rating
Current capture ratio method

Step 1: Define the Product
(Property Productivity Analysis)
Site
Size:
Should be large enough to discourage competition, and to accommodate potential expansion
Look for:
Unity of Space
Frontage for visibility
Adequate depth to accommodate buildings and parking

Step 1: Define the Product
(Property Productivity Analysis)
Site, con’t:
Land-to-Building ratio
is the subject typical of the market?
Is there
Adequate parking
Loading docks that don’t interfere with shop access
Buffers and setbacks from streets and other land uses

Step 1: Define the Product
(Property Productivity Analysis)
Site, con’t:
Topography
is the site level with the surrounding streets for good visibility
Utilities
are all typical utilities in place or readily available
Zoning
Is the site properly zoned for the existing and/or future uses?

Step 1: Define the Product
(Property Productivity Analysis)
Building Design and Layout
Building size, materials and quality
Canopies
Signage
Storefronts and monument sign
Truck loading docks and circulation
Floor plan design and flexibility
Store size, width, depth, ceiling heights

Step 1: Define the Product
(Property Productivity Analysis)
Tenant Mix and Marketing attributes
Anchor tenant(s)
complementary secondary (shop) stores
Consumer perceptions of the tenant quality
Overall shopping center image
Amenity features
theaters, recreational facilities, landscaping and/or waterscape features, food court

Step 1: Define the Product
(Property Productivity Analysis)
Location Analysis
Key considerations
shoppers tend to move toward the dominant center
shoppers will tend not to go through (past) one center to get to another center offering the same shopping goods and services
visibility from the street is important
best location provides easiest access from the trade area

Step 1: Define the Product
(Property Productivity Analysis)
Land Use and Linkages
current land use trends
age, condition and conformity in the neighborhood
linkages to demand
where to customers live and work
where to customers go for other purposes
i.e.: recreation, entertainment, public transportation
site linkages
curb cuts, turn lanes, raised street medians, transit stops

Step 1: Define the Product
(Property Productivity Analysis)
City/Area Growth Patterns
direction of urban growth
rate of urban growth
use map to plot ages of neighborhoods to analyze growth trends
Factors that influence the direction of growth
man-made: major limited access highway
natural: rivers, mountains
political: municipal (district) boundaries

Map of Urban Growth Axis

Step 1: Define the Product
(Property Productivity Analysis)
Competitive Location Rating
What is the center’s current ability to attract customers?
What is the center’s ability to maintain its market share over time?
Use a rating matrix to help quantify the above questions

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Trade Area Circles
Identify the center type
regional, community, neighborhood
Identify neighborhood travel routes
Identify the location of the competition
Define the trade area in terms of
transportation systems
direction of community growth

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Define the trade area in terms of
Land Use and demographic factors
transportation systems
direction of community growth
Existing and projected patterns of residential development
Household purchasing power

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Gravitational models
Reilly’s law states that the attractiveness or ability of a center to attract customers is proportional to how big it is and how far it is from its competition. Distance has a greater impact than size.

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Gravitational models
The formula
TAB = T / (1 + Sa / Sb)
Where:
TAB = trade area boundary from Sb
T = Travel time between store A and Store B (could use distance instead)
Sa = Size of Store A (or retail cluster)
Sb = Size of Store B (or retail cluster)

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Customer Spotting
Obtained from survey data
Obtain customers home addresses
Spot on a map
Calculate Primary, Secondary, and Tertiary areas
Compare number of customers from each area
generally 65%, 25%, 10%

Step 2: Define users of the Property
and Trade Area (Market Delineation)
Recap
A property can have more than one trade area
A trade area is defined for a specific land use at a specific location
Emphasis is on defining linkages
time - distances relationships
Trade areas are formed by urban growth patterns
Trade area analysis considers competition