Investing in Pandemic-Induced Commercial Real Estate Vacancies: Land of Opportunity or Lemming Cliff of Doom?

Investing in Pandemic-Induced Commercial Real Estate Vacancies: Land of Opportunity or Lemming Cliff of Doom?

By Todd Walls, Chief Innovations Officer

I recently read a couple of news articles about Steak ‘n Shake auctioning off 15 properties and national chains like Starbucks, Pier 1, and McDonalds shuttering hundreds of locations due to non-location pandemic-related issues such as cash flow.

Pre-pandemic, it was pretty much a given that a failed location for one tenant led to negative assumptions about the site. It made brands cautious about relocating there for fear of reliving someone else’s mistake. But the fallout from COVID-19 has brought up a more diverse list of reasons for closure, making it more difficult than ever to pinpoint the specific reasons behind a failed location.

As the real estate industry continues to change dramatically and leaves thousands of vacancies nationwide, it got me thinking. Could expansion to recently vacated locations be an opportunity instead of a potential pitfall? How do we know if it was the location that failed the tenant, or if it was the tenant who failed the location? Was the population too small to support the business?

And how can we know?

Crisis Creates Opportunity

For answers to these questions across all industries, there are automated analytics tools that use de-identified customer behavioral data.

To illustrate how these tools can be used for a restaurant chain, I analyzed 14 recently closed Steak ‘n Shake locations by tracking behavioral data at each location. By using the data I received, I was able to tackle the following critical questions about the Steak ‘n Shake locations to determine if these locations might present good opportunities for another restaurant brand.

Q1). Is there something odd about the trade areas of the closed locations?

These 14 locations pulled customers from an 18-minute trade area on average, with a range of 14 minutes to 19 minutes. Since I know that half of a restaurant’s customer volume usually comes from the first third of the trade area, I now know the primary trade area would be approximately six minutes. The next 25% of customer volume comes from the next third of the trade area, which would be approximately 12 minutes.

A1: The tools show me that the trade area size for each of the closed locations falls in line with the company’s averages, so there are no red flags there. At first look, this location could be good for a potential new restaurant. 

Q2). Who were the customers who actually came to the previous tenant’s location?

When evaluating a site, whether for a relocation or new acquisition, the typical process is to look at who lives or works in the trade area. I was able to take this a step further to investigate the types of customer households that actually went to Steak ‘n Shake.

A2: On average, the closed Steak ‘n Shake locations pulled a higher income demographic as well as more single-family households, compared to the trade area, which shows potential for me.

Q3). Was this a “good” location for the previous tenant?

Now to the big question. Are these closed Steak ‘n Shake locations the poorest performers in the chain, which ultimately signals failure for any concept to follow? Or are these locations victims of the pandemic for non-location reasons? Looking at traffic volumes for each location and benchmarking these volumes against all existing Steak ‘n Shake locations can provide the answer.

A3: On average, the closed Steak ‘n Shake locations’ customer volume was -30% below average. Not unexpected. However, when looking at the closed locations individually, three fell very close to the average national volume for Steak ‘n Shake. 

Conclusion: These are the three locations that I am interested in! The data collected gives me confidence that these three locations were not necessarily failures but were victims of circumstance and possibly great opportunities for my concept.

The Bottom Line

No longer is the process of evaluating real estate too expensive or too difficult. Buxton uses analytics to make any site selector more effective, confident, and less likely to fail.

Mobilytics is a retail analytics tool that uses de-identified customer behavioral data within any geographical area to give you accurate and detailed views of visitors who come and go, including the psychographics of their household. With this tool you can create, analyze, and visualize mobile datasets for any place and see how results change over time.

Match takes this one step further and allows you to compare actual observed visits at any site to visits at a set of a targeted brand’s location. All you have to do is pick a location, select a targeted brand, and select the time range for comparison.

In a matter of minutes, and for less of an investment than you’d think, the data will help you determine if the location failed the tenant or if the tenant failed the location. It does this by evaluating the actual trade area, customer metrics, and performance metrics from billions of pieces of mobile device data. 

To explore these newly available tools from Buxton including Match and Mobilytics, please contact us to learn more.