Today, urbanization is occurring at an extreme rate, with more than 1 million people moving into cities globally every week. At this pace, by 2050, 67% of the world’s population will be living in a city.
And as this urbanization continues, it will greatly impact retailer, developer and investor strategies – as we can see in the growing appetite for urban retail real estate, not only in primary markets, but also in secondary and tertiary markets.
In 2014, urban retail deals totaled $13.1 billion, which is a 60.3% increase compared to 2013.
However, as retailers expand into urban markets, they need to be more cautious and aware of their real estate strategies.
The combination of abundant data and more sophisticated analytic tools have challenged certain site selection practices and assumptions that over the years have become accepted as “tried and true,” especially when it comes to urban site selection.
Here are some of the long-held assumptions that need to be re-evaluated for urban site selection:
Assumption #1: Drive Time is Still the Most Important Factor
The number of people within an “x-minute” drive-time radius has historically been one of the leading determinants of where retailers choose to locate in suburban markets.
However, in an urban environment, this factor must be weighted differently in light of other criteria, such as traffic patterns, proximity to other businesses and the locations of subway stations and bus stops, which will better serve in defining the best locations for your particular concept.
Assumption #2: High Rent Equals High returns
Today’s analytic tools make it easier than ever to determine the correlation between a high traffic/high rent area and the amount of business that it generates.
In some situations, price and quality don’t match and while a location may be successful, its true value has been overestimated. So the high rent that is associated with that location would make it difficult, if not impossible, for many retailers to maintain a reasonable profit margin.
Assumption #3: An Area That is High in Traffic Will Be High in My Customers
The relevance of high-traffic patterns entirely depends on whether or not your target demographic and psychographic audience is heavily represented.
For example, a subway exit near a university campus and one near a hospital both offer high traffic, but have consumer bases with totally different demographics and psychographics.
Retailers need to view potential locations not just by traffic flow, but also by where there are high concentrations of their customers and potential customers.
The Bottom Line
While some of these “tried and true” practices are still valid in many cases, it’s critical to remember that they aren’t always.
And as with any market entry, urban site selection comes with its own unique set of challenges and nuances.
But with the proper analytic tool, a vast number of insights can be revealed that will help you see when these practices are wise and when a more promising location is lurking just around the corner.
Want to know more about how you can utilize technology and analytics to answer your most pressing retail real estate questions? Don’t be shy, reach out. We’re here to help.