Market Analysis for Shopping Centers Demand, Supply

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

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
Population and Households
Forecast number of households in trade area
Population forecast
most important variable in market analysis
Secure all available forecasts for the target area
identify methodology, data sources and assumptions made in forecasts.
Compare the assumptions of each secondary forecast with local area trends
Review employment forecasts to see if they are reasonable and support population forecast

Step 3: Forecast Demand Factors
Population and Households, con’t
Are size of household and income trends consistent with base census data and current lifestyles?
Is the forecast consistent with the discerned direction and rate of growth and the location rating?
Compare the subject area forecast to the forecast for the total area
Analyze the motivation of the forecaster.
Is the forecaster independent? For what purpose will the forecast be used?

Step 3: Forecast Demand Factors
Population and Households, con’t
Reliability
forecasts are questionable beyond one year
analyze with a sensitivity range
conservative, expected, and optimistic
Procedure for modifying the forecasts of others
forecasts are prepared to the needs of the forecaster
must allocate by observation a portion of the population that resides in the trade area

Step 3: Forecast Demand Factors
Population and Households, con’t
Information Sources
U.S. Census of Population
www.census.gov
Sales and Marketing Management Magazine
Annual Survey of Consumer Buying Power
City and Regional Planning Agencies
Local Universities, school districts, utility companies, economic development agencies
Private, commercial forecasting services
ERSI
Statistical Abstract of the United States and City and County Data Book (US Dept. of Commerce)

Step 3: Forecast Demand Factors
Mean Income per Household
Income
Total potential retail sales volume depends:
upon population, and
the propensity to spend from income, which is
dependent on the level of income, and
the characteristics of the population, such as
age, family size, tastes, preferences
Information sources
Same as for population forecasts plus
Current population reports (published every 2 years)
Survey of Current Business (US Dept. of Commerce)

Step 3: Forecast Demand Factors
Mean Income per Household, con’t
Procedure to estimate income: Modification
Modify the current per capita, household or family income for a larger area
Relationship between mean (or median) income for the census tract and the larger area can be compared over time.

Step 3: Forecast Demand Factors
Mean Income per Household, con’t
Procedure to estimate income: Inferred
Current Income may be inferred from house prices.
If the average house costs $250,000 and
If the typical underwriting criteria is 33% for Principle, Interest, Taxes and Insurance (PITI), then:

Step 3: Forecast Demand Factors
Mean Income per Household, con’t
Procedure to estimate income: Weighted Average
When trade area covers several census tracts, a weighted average can be used to estimate mean or median income for the trade area. For example:

Step 3: Forecast Demand Factors
Income Spent on Retail Goods & Services
Consumer Expenditure Survey
US Bureau of Labor Statistics (www.bls.gov)
Note: data reflects a large city in the southwestern United States
Source of data:
www.bls.gov/cex/home.htm

Step 3: Forecast Demand Factors
Income Spent on Retail Goods & Services
Sources of Data
Consumer Expenditure Survey (www.bls.gov/cex/home.htm)
2000 Census of Population and Housing (www.census.gov)
Census of Retail Trade (www.census.gov/econ/census02/)
Sourcebook of ZIP Code demographics - ERSI
Annual Survey of Consumer Buying Power
Sales & Marketing Management Magazine
Data generated by the local economic development agencies

Step 3: Forecast Demand Factors
Most Probable Percentage of Retail Expenditures for Subject-Center type goods
Types of Goods
Must be established for subject-center type
Working Table can be developed by reference to the Census of Retail Trade
Total percentage spent in the trade area on subject-type retail goods is applied to the total retail sales potential to derive an estimate of the total retail sales available in the trade area for subject-type retail goods.

Step 3: Forecast Demand Factors
Estimate percentage of retention of sales in the primary trade area
Percentage retention indicates the total dollars expected to be spent in competitive retail space in the subject property’s primary trade area.
Techniques:
difficult to support; estimate a range
customer spotting analysis
industry standard suggests that 60% to 70% retention in the primary trade area.

Step 3: Forecast Demand Factors
Estimate Sales required per Square Foot of Supportable Retail Space
Objective: to assess the subject’s future earning prospects (rents) which are directly dependent on occupancy.
Data Sources:
Dollars and Cents of Shopping Centers
Urban Land Institute
Published Bi-Annual Survey
Primary Research by the Analyst
Collection of Income data from stores present in the market area

Step 3: Forecast Demand Factors
Estimate Total Supportable Retail Space in the Primary and Secondary Trade Areas
Repeat analysis leading to an estimate of potential sales in primary trade area for the secondary trade area(s).
Add estimates of potential sales in primary and secondary area(s) to get total sales potential.
Divide total sales potential by sales required per square foot to determine supportable retail space in the primary and secondary trade area(s).
Determine the percentage of vacant space required in a normal, or balanced market
Divide the supportable retail space by the complement of the normal vacancy factor to derive an estimate of the total supportable retail space in the defined trade area.

Step 4:
Inventory and Forecast Competitive Supply
Purpose
Catalogue all current and potential space competing for subject center-type retail sales
Where: Primary and Secondary trade areas
Analysis of competitive properties
Estimate current market rents
Derive current occupancy rates

Step 4:
Inventory and Forecast Competitive Supply
Estimate of existing competitive space
Standing inventory in primary and secondary trade areas
Forecast of new competitive space
Newly developing inventory
Potential new inventory

Step 4:
Inventory and Forecast Competitive Supply
Procedure
Identify all competitive retail space in the subject’s trade area
Catalogue all key physical, location, and economic characteristics for each comparable
Use of a checklist and/or rating matrix is helpful
Analyze comparable competitive retail space
Some items to be considered are
Physical characteristics (size of improvements and site, locational characteristics)
Occupancy Rates and Economic/financial information
Tenant mix

Step 4:
Inventory and Forecast Competitive Supply

Step 4:
Inventory and Forecast Competitive Supply
Analyze Potential Competition
new competitive space that could come into existence during the 5 to 10 year income forecast period.
Can be hard to estimate - things to investigate:
look at vacant lots in the area
consider local zoning of vacant property and the whims of local planning officials
discuss future development with the staff of municipal building and planning departments
survey preliminary plats, which demonstrate long-range plans for developing the area
review local news stories
compare current rents to feasibility rents

Step 5:
Analyze the Interaction of Supply and Demand
Residual Demand Analysis
Estimate of the amount of excess demand or supply of space in the trade area for which the retail property will compete.

Step 6: Forecast Subject Capture
Techniques
Share of Market
Based on size of the Center
Example: 100,000 in subject center, (9,290 sq. m.)
500,000 in existing competitors, (46,451 sq. m.)
600,000 total SF in trade area, (55,741 sq. m.)
Subject Capture is 1/6 or 16.7%
Location and Amenity Rating
Tabulated using a location and amenity rating matrix
Example: 100 subject score
480 total score of all competitors
580 total combined scores
Subject Capture is 10/58 or 17.2%

Steps in Residual Demand Analysis