Market Analysis for Shopping CentersMarket Analysis ProcessStep 1: Define the Product (Property Productivity Analysis)Step 2: Define users of the Property and Trade Area (Market Delineation)Step 3: Forecast Demand Factors Population and HouseholdsStep 3: Forecast Demand Factors Population and Households, con’tSlide 7Slide 8Step 3: Forecast Demand Factors Mean Income per HouseholdStep 3: Forecast Demand Factors Mean Income per Household, con’tSlide 11Slide 12Step 3: Forecast Demand Factors Income Spent on Retail Goods & ServicesSlide 14Step 3: Forecast Demand Factors Most Probable Percentage of Retail Expenditures for Subject-Center type goodsSlide 16Step 3: Forecast Demand Factors Estimate percentage of retention of sales in the primary trade areaStep 3: Forecast Demand Factors Estimate Sales required per Square Foot of Supportable Retail SpaceStep 3: Forecast Demand Factors Estimate Total Supportable Retail Space in the Primary and Secondary Trade AreasSlide 20Step 4: Inventory and Forecast Competitive SupplySlide 22Slide 23Slide 24Slide 25Step 5: Analyze the Interaction of Supply and Demand Residual Demand AnalysisStep 6: Forecast Subject CaptureSteps in Residual Demand AnalysisSo That’s Market Analysis for Shopping CentersMarket Analysis for Shopping CentersDemand, Supply and Equilibrium AnalysisWayne Foss, DBA, MAI, CRE, FRICSFoss Consulting GroupEmail: [email protected] Analysis ProcessStep 1: Define the Product (property productivity analysis)Step 2: Define users of the property and trade area (Market delineation)Step 3: Forecast Demand FactorsStep 4: Inventory and forecast competitive SupplyStep 5: Analyze the interaction of Supply and DemandStep 6: Forecast subject capture3Step 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 area4Step 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 Spotting5Step 3: Forecast Demand FactorsPopulation 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 forecast6Step 3: Forecast Demand FactorsPopulation 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?7Step 3: Forecast Demand FactorsPopulation 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 area8Step 3: Forecast Demand FactorsPopulation 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)9Step 3: Forecast Demand FactorsMean 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)10Step 3: Forecast Demand FactorsMean 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.Previous Census YearMost Recent Census YearCurrentSubject Census Tract (101) $2,500 $3,000 $3,915 (forecast)MSA $2,000 $2,200 $2,700 (known)Census Tract / MSA 1.25 1.36 1.45Per Capita Mean Income11Step 3: Forecast Demand FactorsMean 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:House Price $250,000Less Down Payment (20%)$50,000Mortgage $200,000Mortgage Assumptions 30 year/monthly pmts @ 7.0% interest rate Monthly Payment $1,330.60 Average Yearly Income Real Estate Taxes $2,500.00 Yearly Housing Cost $19,067.20 Insurance $600.00 Divided by Underwriting 33.0% Total Yearly Housing Cost $19,067.20 Average Yearly Income $57,77912Step 3: Forecast Demand FactorsMean 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:Primary Trade AreaCurrent PopulationCurrent M edian IncomeEstimated Percent of Capture in the Trade AreaWeighted AverageCensus Tract 10110,000 $39,150 x 30.0% = $11,745Census Tract 102 8,000 $30,000 x 24.0% = $7,200Census Tract 103 9,000 $33,000 x 27.0% = $8,910Census Tract 104 4,000 $35,000 x 12.0% = $4,200Census Tract 201 2,000 $27,000 x 7.0% = $1,890