The first step in determining the market opportunity for retail land uses is to get an understanding of one’s surroundings. Key issues to pay attention to include the immediate context, competing projects / districts, transportation and access, and upcoming development trends. This analysis process will help determine the market voids currently unfulfilled in the local market.
Site / Neighbourhood Context
Site / neighbourhood visits should be done on foot and with great patience. Visit during the weekday, in the evenings and on weekends. Walk around the immediate neighbourhood to determine the following questions:
- Is this project a trend setter or trend follower? Are we paving a new path or simply fitting into the existing context of the neighbourhood? Trend setting projects are inherently more risky.
- How accessible is the site / neighbourhood in terms of pedestrian connections and road networks?
- How much visibility does the area receive from passing vehicles and are any other buildings obscuring view angles?
- What is the socio-economic status of the pedestrians that are currently found in the immediate neighbourhood?
- Are there any other barriers or opportunities which could impact the site?
Visit retail in nearby neighbourhoods to gain an understanding of the competitive market place. The number of locations to visit depends on the context, but generally a good rule of thumb is to see all developments in a 5 minute driving time and comparable retail beyond a 5 minute distance. In addition to viewing competing retail, it is also a good idea to see the best the market has to offer – the highest performing retail centres, the most vibrant streets, and the most successful mixed use projects. Strong observation skills are needed, paying careful attention to the people walking around the project. Key things to look for include:
- Age, gender and ethnicity. Also look to see whether families with young children are prevalent.
- Style of clothing and whether women are carrying luxury brand purses.
- Whether visitors are carrying shopping bags or just window shopping. Do a rough tally for 50 shoppers for each location.
- How busy individual stores are. Ask store staff some general questions about the types of people who shop and how busy it is compared to other locations.
- The types of vehicles parked nearby and how many spots area available considering the time of day.
- Record the brand names and determine whether the retail is value oriented, middle price point, or more premium.
- Comment on the design elements, anchoring strategy and circulation system. These principles apply to both indoor enclosed retail centres and to outdoor retail streets.
After visiting a retail destination, your personal assessment should be cross-referenced with local experts such as leasing brokers. It is not necessary to get exact sales / rent figures to assess general performance (although this data is always excellent to have if it is obtainable).
Transportation and Access
Transportation and access can play an incredibly important role in the success and failure of retail. Geographical barriers such as rivers and mountains can block off trade areas from the subject area. Travel time, not distance, is the most important factor determining someone’s propensity to visit.
Recognizing the inherent opportunities and constraints in regards to transportation and access for the site / neighbourhood will allow these attributes to be better accounted for in the later planning phases.
A final thing to keep an eye out for is the latest development trends in the surrounding district. Market feasibility analysis relies heavily on secondary data which is almost always at least a few years out of date.
Changes occur quickly in real estate, and recognizing and responding quickly to new trends can be a powerful advantage. Take note of buildings under construction, condo advertising, or planning permit application signs. Cross reference the selling price per square foot of advertised projects and compare it with the city wide average. Higher real estate prices but lower existing demographic figures signal major changes unaccounted for in secondary data. As well, new offices and hotels will both bring important sources of retail expenditures to the immediate area.
Nearby retail under development is both a positive signal but also a potential future threat. Talking to retail leasing brokers can help gauge the intended market positioning of these projects and help coping strategies.
Review local market performance indicators such as vacancy rates, rental rates, net absorption and capitalization rates. Leasing brokerage firms typically track inventory and release quarterly reports free of charge. If possible, obtain several years worth of data to determine whether clear and noticeable trends are present. Decreasing vacancy rates and strong positive absorption, for example, would be strong signs that the market is ripe for future development.
The purpose of this initial process is primarily to determine the general state of the market and where the retail in question fits into this context. In particular, determine where there are gaps in what the market is currently offering. Is there a shortage of a particular type of retail format or a lack of certain anchors? Is there a type of “experience” the market is failing to deliver? Are certain types of projects performing much more strongly than others? Identifying market voids is a prerequisite to creating a strong guiding vision.
Market void analysis is important for both public sector interests and private developers. Both sides have an interest in preventing the development of redundant retail. Vacant retail projects are negative for both financial and public interest reasons.