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Site Selection: Identifying the Right Markets

  

There’s a myriad of site selection tools commercial real estate professionals will swear by during the development process, and it seems like there’s a new platform popping up every year that promises to be better than the last.

So how do you know what will actually produce that “magic” site, or what will turn out to just be smoke and mirrors?

Instead of focusing on any specific program, take these fail-safe measures to identify the right markets for your retail properties.

 

  • Utilize macroeconomic factors

To prioritize your key markets, use a demographics research tool to pull these metrics first: population demographics, population growth, unemployment rates, cost of living, utility costs, wages, tax rates, total retail GLA, and consumer spending. 

 

Find the trade areas that best fit your required criteria, then prioritize them based on barrier to entry and other competitive factors. Then, conduct a comprehensive location analysis using location analytics, or quantifying a location to gain a critical perspective of the surrounding area of a property to ensure the proper evidence for an educated decision. To get more granular, analyze the sales volume of the existing retail tenants near the prospective site. 

 

It also helps to have relationships with industry brokers who know the market firsthand. If you don’t already have a deep bench of contacts you can call on, consider partnering with an experienced developer who certainly will.

 

  • Analyze the types of consumers 

When it comes to the average customer profile of that area, focus on the macroeconomic factor of the median income level, but also consumer spending. This is important because even if there’s similar demographics, shopping behavior can still vary.

 

Take it a step further by pulling any recent community surveys on what the residents want in that area. For example, view the Surprise Community Survey that SimonCRE has taken into account while developing the Costco-anchored regional shopping center, Village at Prasada

 

While you’re researching the consumers, don’t forget to consider the amount of housing near the site. Is there any additional housing planned in the area? Depending on the type of housing and economic state of the community, there may be tax incentives or opportunity zones of which to be aware.

 

  • Weigh out the competition levels

As a retailer, your initial reaction may be to avoid the oversaturated markets of your type of store, but don’t rule them out too early. A little competition is a sign of a healthy market. However, this belief works best when there is enough demand to go around, though.

 

For example, some tenants will have a radius requirement to stay away from certain businesses or to help avoid cannibalization of existing stores. But on the other hand, some tenants actually prefer to be closer to their competition if they feel they are superior operators and can out-position them within the trade area. For instance, it is not uncommon to see a Dunkin’ location pop up within close proximity to a Starbucks.

 

  • Measure the distance from current operations

Logistically, decide what distance would be feasible when it comes to your existing supply chain structure. Would it make sense to break into the east coast now when all your current locations line the west? Or, should you gradually move east by tapping into midwest markets first?  

 

Remember every project is different and so is every municipality. Don’t mistake it as a one size fits all approach. Here’s other mistakes to avoid

 

  • Partner with an experienced site selection team

There is so much more to site selection than what can be put into words, so consider entrusting an experienced developer that knows exactly what to look for. They will seek to understand who you feel are the biggest competitors, and be able to adjust the site selection criteria accordingly.

 

Here are some questions to ask before hiring to boost your confidence in your decision.

 

Also, the team should be using a weighted model. This will rank each potential location by both qualitative and quantitative factors including labor market scalability, workforce demographics, cost of living, and operating costs. Tenants that go it alone may only be looking at factors such as transportation, human capital needs, and other market dynamics research. However, other important items include laws, barriers to entry, and other tenant-specific recommendations.

 

Here’s a list of other quantitative and qualitative items to consider.


The above techniques are just a few points that tenants should use for the site selection process. Or, considering hiring an experienced developer that will already have all of these tactics and more at their disposal. 

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