Retail Shopping Center Market Analysis

Transcription

for the
Shoppes at Farmington Valley
Canton, Connecticut
FNCE 5534: The Internet and Information Systems Applied to Real Estate
Professor John M. Clapp
Spring 2009
Neil Amwake
Jennifer Brochu
Willy Isaac
Kristin Murray
H Guy Williams
March 31, 2009
School of Business, University of Connecticut
The Shoppes at Farmington Valley
Page 1
This report examines the viability of a regional shopping center in Canton, Connecticut. The
analysis takes place in the year 2000. The subject site was developed in the years following
2000 and this paper seeks to validate or otherwise repudiate the project.
The Market Defining Story
The key question this market analysis seeks to answer is if the proposed lifestyle center is a
viable net present value project, and if so, at what level of development will the subject site
support.
Introduction
The Shoppes at Farmington Valley is to be developed as a shopping destination that offers a
selection of national retailers, specialty stores and distinctive eateries situated in an open-air
environment, including wide sidewalks, abundant landscaping and park benches. The proposed
425,000-square foot lifestyle center will be designed to have a New England village look and
feel, including storefronts with colonial-architectural elements, cupolas, traditional lamp posts
and space for outdoor dining.
The Shoppes at Farmington Valley (The Shoppes) expects to attract a mix of nationally known
retailers and anchor stores, upscale regional retailers and unique restaurants in an alternative
atmosphere to that of a traditional enclosed shopping mall. The Shoppes will be accessible
from State Route 44, just east of the intersection with State Route 177. Once completed, this
lifestyle center will be the largest retail center in the affluent trade area that includes Avon,
Canton, Farmington, Granby and Simsbury.
A lifestyle center typically requires less land and generates higher revenue margins per square
foot ($500/ sq. ft.) compared to a traditional enclosed shopping mall ($330/sq. ft.).
1
New reports also reveal consumer dissatisfaction with enclosed mall shopping experiences.
Shoppers pressed for time generally must park far away from the stores they wish to visit and
walk past many stores they aren't interested in to reach their ultimate destination. The average
mall trip takes more than 75 minutes, while shopping trips to open-air centers average about
57 minutes, according to ICSC. Also, although they spend less time, lifestyle center shoppers
visit more stores and spend more money than those who frequent malls. In a report comparing
five lifestyle centers to five malls, the ICSC found that shoppers entered an average of 2.9
stores and spent $75.70 in the lifestyle centers versus 2.3 stores and $73.30 in the malls.2
1
2
“Lifestyle center (retail)”, <http://en.wikipedia.org/wiki/Lifestyle_center_(retail)>
Mulartrick, Dale, Silver, David and Anderson, Lawrence, “Lifestyle Centers Capitalize on Shoppers’ Need for
Speed,” Commercial Investment Real Estate, <http://www.ciremagazine.com/article.php?article_id=182>
Page 1
Additionally, a lifestyle center requires less heating and cooling than an enclosed mall reducing
operating costs. Likewise, many upscale mall tenants are anxious to move to a lifestyle center
to reduce their operating costs and seek higher visibility than a shopping mall traditionally
provides. “The key to creating a successful lifestyle center is to build in a community with great
demographics, to provide an opportunity to bring in specialty stores not in the market, and to
choose retailers appropriate for the market,” stated Karen Land of the Davis Street *St. Louis+
Land Company. 3
3
Lackey, Jaime, “Bringing the Lifestyle Format to St. Louis,” Shopping Center Business, April 2008, <
http://www.shoppingcenterbusiness.com/articles/APR08/story3.shtml>
Step 1: Define the Product (Property Productivity Analysis)
The success of the estimated $50 million project will rest squarely on drawing business away
from competitors. The value proposition requires, in part, that the affluent consumers of the
Farmington Valley will find The Shoppes a more convenient alternative to the Westfarms Mall
in West Hartford, or other shopping destinations. Combining upscale shops with national
retailers may help draw from less affluent towns, possibly as far away as Torrington. Indeed, in
1997, Westfarms Mall expanded to create an upscale section, with some of the same retailers
appearing in lifestyle centers.4
For Canton, a town of 8,840 people, the loss of the golf course means the addition of taxpayers
who will pay an estimated $750,000 a year into town coffers -- more than the current top 10
taxpayers combined. Taxes from The Shoppes also will entirely pay for a $14 million bond
issue, including interest, targeted at renovating and expanding several aging schools in town
(Gosselin D.1).
Step 1.1: Analyze the Site and Building for Competitive Strengths and Weaknesses
While not large enough to support The Shoppes alone, Canton is a growing community.
According to town planning officials, there are now about 400 residential building lots in some
phase of approval or development. This year alone, developers have spent more than $2
million to acquire tracts across from The Shoppes, according to Canton land records (Gosselin
D.1).
Including "big-box" stores in the development plan is driven by practical competitive need. The
larger stores are necessary to secure financing as well as to act as a competitive ace for drawing
customers from busy State Route 44. The larger stores will ensure the Shoppes become a retail
destination with the strategy being the spillover into the smaller shops. The plan for the
Shoppes at Farmington Valley is to locate the large magnet stores on one end of the subject
parcel and the "town square" architecture of the smaller shops on the other. One challenge
may be getting shoppers to cross from box stores on the west end of the property to the village
on the east. The two areas promote widely different kinds of shopping and are also physically
separated by parking lots (Gosselin D.1).
Step 1.2.1: Investigate Land Use and Linkage of the Subject Property
4
Gosselin, Kenneth, R. "" Hartford Courant 16 May 2004, D.1
Page 1
The Shoppes will make it even more difficult to enter and exit businesses currently established
along Route 44, even with road improvements proposed by the developers. Already an average
of 26,000 motor vehicles travel Route 44 daily. The Shoppes will add an average of 1,900
vehicles on Fridays and 2,300 vehicles on Saturdays, according to the State Traffic Commission
(Gosselin D.1).
Secret Lake, a secluded community of about 260 luxury homes straddling the Avon-Canton
border, stands to lose some of its exclusivity if motorists begin using the community's private
roads as a short cut to the Shoppes.5
The traffic on State Route 44 in the area of the Shoppes is at once a blessing for draw and a
curse for customer ease. But there exists another extreme in close proximity. The Avon
Mountain ridge creates a natural barrier to the east of the site. Passage across this barrier is
limited; one particular method is the Route 44 throughway. However, this section of Route 44
is notorious for its accidents and general difficulty in driving.
Directly in front of the target site lays a crucial piece of town infrastructure, approximately 50
million gallons of water passes beneath the road daily in a major transmission main owned and
operated by the Metropolitan District. The protection and continued operation of this vital
infrastructure will require careful attention during development of the site.
Step 1.2.2: Determine the Position of the Subject Property within the Patterns of Urban
Growth
We can frame the debate over development such as what we propose at the Shoppes at
Farmington Valley. In the past three years, 159 of 169 Connecticut cities and towns raised
property taxes at least once, according to Connecticut Conference of Municipalities (CCM)
figures. At the same time, the state's share of school funding has been dropping. In 1990, the
state’s share was 45.5 percent; this year it is at 41.1 percent. Under Gov. John G. Rowland's
budget adjustment, it will drop to 39.3 percent.
At the same time, the suburban towns have to build new schools and other facilities to meet
increased demand as a result of population growth. Suburban communities end up trading
open space to grow the grand list.6 Recently the Konover Development Corp. gave up plans to
develop seven acres adjacent to the proposed Shoppes site after Canton rejected their plan to
construct a Target on the property (Gosselin D.1). These battles are driven by
overdependence on the property tax. Opponents view this as sprawl without growth.
5
"Secret Lake Goes Public." Hartford Courant [Hartford, CT] 12 Aug 2004: A.14
6
Condon, Tom. "Property Tax System is Failing" Hartford Courant 21 Feb 2002, 7 SPORTS FINAL ed, B.1
Page 2
Canton is currently considering adding another police position and is debating the viability of
the all volunteer fire department; both in response to retail growth in the area, particularly
along the Route 44 corridor.7
Step 1.3.1: Legal and Regulatory Attributes - Private
In recent years developers have spent more than $2 million to acquire tracts across from The
Shoppes, according to Canton land records. Car dealership owner Mark Mitchell has already
begun clearing trees and removing old homes as he seeks town approval to relocate his
Volkswagen car business from leased property on Route 44 that is closer to the Simsbury town
line. East of the Mitchell property, rug store owner Abe Kaoud has demolished the building
that formerly housed Balcony Antiques and has begun building a smaller structure that will
house Kaoud's 11th store in Connecticut and Massachusetts along with a home furnishings
store (Gosselin D.1).
Step 1.3.2: Legal and Regulatory Attributes – Public
During the design and development of the Shoppes at Farmington Valley, several legal and
regulatory attributes will need to be confronted. First and foremost is the construction of the
retail buildings and associated parking within a site with delineated wetlands and an active
watercourse. The design will need to minimize wetland disturbance, with construction
techniques that are environmentally sensitive. In addition, the developers will need to properly
contain the watercourse and account for stormwater generated both on the subject site as well
as stormwater that will flow through the watercourse from upstream areas. The opportunity
exists for the developer to design an aesthetically pleasing watercourse channel and
stormwater retention/detention structures.
The Shoppes at Farmington Valley will also require review and approval by the State Traffic
Commission (STC) since the subject is located along State Route 44, and is near the intersection
with S.R. 177. This process typically can take between one to two years from preliminary
discussion and engineering to final approval by the STC. The STC can dictate the location and
layout of access to the lifestyle center, including the number of thru travel lanes and turning
lanes, traffic signal times as well as other highway and traffic engineering requirements.
Further, a wastewater pumping station and associated force main will need to be designed to
serve the retail and dining establishments proposed for the Shoppes since the subject parcel is
at a lower elevation than public utilities available adjacent to the site.
7
"Police Feel Growing Pains." Hartford Courant [Hartford, CT] 1 Mar 2004: A.6
Page 3
Figure 1 - Lot sizes, flood zones, wet lands, and 2002 land cover in the region of the proposed
site.
Step 1.4.1: Identification of Economic Attributes
Environmental issues are actively debated in Canton. Representative Jessie Stratton, D-Canton,
recently the co-chairwoman of the state's General Assembly environmental committee and a
member of Governor Roland's 15-member task force, is seeking a renewed effort to preserve at
least 10 percent of the state's land as open space accessible to the public.8
Currently there is a dispute over plans for the Canton Village Construction Company to excavate
sand and gravel from the company's land off Farmington River Turnpike. The opponents of the
Canton Village application, mainly residents of Farmington River Turnpike, say heavy truck
8
Stannard, Charles. "Panel Discussion Will Focus on State Environmental Policy" Hartford Courant 2 Mar 1998,
Bulldog ed.: B.4
Page 4
traffic on their narrow country lane will harm the environment, lower their property values and
increase hazards to children and others who walk along the riverside road.
Another aspect of the dispute is a zoning rule dealing with finished slopes. The rule says "a
finished slope face or embankment created by excavation or filling shall not exceed a height of
30 feet before being blended with the natural undisturbed slope of the property." The rule was
designed to prevent ugly and environmentally unsound slashing of a landscape. The most
blatant example of such an effect, officials have said, is the gouging of the rock face for the
Shops at Ledgebrook near the Winsted/Barkhamsted town line.9
How the community proceeds, notwithstanding court rulings, will signal its willingness to adapt
to changing needs of the community and how they can be addressed by development.
Step 1.4.2: Identification of the Movement of Demand in Relation to the Direction of Urban
Growth
Rural Connecticut is transforming into Suburban Connecticut. Between 1990 and 2000, 824
square miles of Rural Connecticut became suburban. This was a loss of 28% of Rural
Connecticut. Please note that this report does not define rural areas by land use. Rural areas
are a socioeconomic classification that includes the area of entire towns.
Gains in income were becoming increasingly concentrated in Wealthy Connecticut. Between
1990 and 2000, the population of Wealthy Connecticut decreased from 6.8% to 5.4% of the
state’s total population partially due to the reclassification of five towns from Wealthy to
Suburban. Per capita income in Wealthy Connecticut went from 2.1 times the state average in
1989 to 2.5 times the state average in 1999. Furthermore, true income levels for Wealthy
Connecticut are higher than what is reported here as the Census does not report capital gains.
Consequently, income growth is even more concentrated in Wealthy Connecticut than what is
reported here.
If we categorize the Connecticut population into five distinct socio-economic groups, those
being (in numerical order) wealthy, suburban, rural, urban periphery, and urban core, we can
examine median family income by grouping.
9
Leavenworth, Jesse. "Panel, Applicant Clash on hearing; Firm wants Time to Modify Plans" Hartford Courant 28
Oct 2003, West Hartford/Northwest Connecticut ed.: B.3
Page 5
In Group 1 the share of poverty remained virtually unchanged but the share of family income
grew significantly. Group 2 experienced a drop in its share of poverty and had an increase in its
share of family income. Group 3 had a slight increase in its share of poverty and a decrease in
its share of family income. In Group 4 the share of poverty remained virtually unchanged and
there was a slight decrease in the share of family income. Group 5 experienced a decrease in
its share of poverty and a slight decrease in its share of family income. This does not mean that
the rate of poverty decreased in group 5.
Between 1990 and 2000, the most striking issue among the five Connecticut groups was the
unmatched increase in the share of family income for Wealthy Connecticut. Also, note the
increasing separation in poverty and income between Groups 3-4 and Group 2. This suggests a
trend of increasing disparity between towns in Groups 3-4 and Group 2.
Group 1 had the lowest share of poverty in 1990 and the highest share of family income in both
1990 and 2000. Group 1 towns can be characterized as having exceptionally high income, low
poverty, and moderate population density. The single variable that best distinguishes this
group is its high income or wealth. This is Wealthy Connecticut.
Group 2 had a low share of poverty in both 1990 and 2000. Its share of family income was the
second highest in both 1990 and 2000. Group 2 towns can be characterized as having above
average income, low poverty, and moderate population density. Towns in this group are best
distinguished as suburbs of more densely populated urban areas. This is Suburban Connecticut.
Group 3 had a low share of poverty in both 1990 and 2000. It had a near to equal share of
family income in 1990 and 2000. Group 3 towns can be characterized as having average
income, below average poverty, and the lowest population density. Rural towns with low
population density distinguish this group. This is Rural Connecticut.10
10
University of Connecticut, Connecticut State Data Center. The Changing Demographics of Connecticut – 1900
Page 6
The location of towns was not taken into account when assembling the Five Connecticut
groups. Resulting geographic patterns are a consequence of population density, income, and
poverty.
Step 2: Market Delineation
to 2000, Part 2: The Five Connecticut's. Storrs, CT: May 2004
Page 7
The purpose of delineating the market area is to set the limits of the market demand
calculations and to determine which properties are competitive for this demand. Market
delineation analysis identifies the most likely customers for the subject property in terms of
their location and demographic characteristics. Trade area delineation determines demand
analysis, a measurement of the customer’s desire and ability to buy retail goods.
The size of the trade area is dictated by the location of most of the customers / sales to the
subject property, access to the property, and by the location of its competition. According to
Fanning’s Chart on the Principal Types of Shopping Centers (p. 192), the primary trade area for
lifestyle centers is similar to that of regional shopping centers with a 20-40 minute drive time;
or a 5-10 mile range. 11
Step 2.1: Define the Study Area
Trade Area Circles
The subject property is a lifestyle center, which is comparable to a regional shopping center,
with the primary trade area defined by a 5 - 10 mile (distance) and 20 - 40 minutes (travel time)
radius. We have assumed a trade area circle of 10 miles. There are only 3 primary competitors
within the 10-mile radius of the subject site: Westfarms Mall, Simsbury Commons, and
Torrington Fair Plaza. There are three competitors located outside the 10-mile trade area
circle: Copaco Plaza in Bloomfield, Connecticut Commons in Plainville, and Bristol Shopping
Center in Bristol.
Sizes of Primary Trade Areas based on Retail Type (Fanning, 2005)
Type of Shopping Center
Community Shopping Center
Regional Shopping Center
Super Regional Shopping Center
Distance
3 to 6 miles
5 to 10 miles
10 to 35 miles
Travel Time
5 - 20 minutes
20 - 40 minutes
> 30 minutes
Westfarms Mall is considered a super regional shopping center as it has greater than 1,310,000
square feet of retail space. Simsbury Commons and Torrington Fair Plaza are both considered a
community shopping plazas with square footage of only 256,000 and 200,200, respectively.
The following map illustrates the initial 10-mile range assumed for the subject’s trade area. The
10-mile range was used due to the lack of other similar facilities within this area. The map also
11
Stephen F. Fanning, MAI, Market Analysis for Real Estate (Appraisal Institute, 2005) 192.
Page 8
shows the trade area for Torrington Fair Plaza (6 mile radius), Simsbury Commons (6 mile
radius), Connecticut Commons (10 mile radius), Bristol Shopping Center (6 mile radius) and
Westfarms Mall (15 mile radius). Evergreen Walk, the closest lifestyle center to the subject, is
located approximately 20 miles east of the subject site, across the Connecticut River.
Step 4.1: Competitor Analysis
Primary competition for the subject site consists of Westfarms Mall, which is located to the
southeast. Westfarms is similar in that they offer similarly priced retailers, however on a much
larger scale. Westfarms also benefits from a much more dense population within their primary
trade area than that of the subject, along with direct access and close proximity to multiple
major roadways. In comparison, the subject suffers from limited access to major highways,
though it is along a major thoroughfare for commuters working in Hartford and living west of
the proposed lifestyle center.
The only other competition within the delineated trade area consists of the Torrington Fair
Plaza, which houses retailers that offer lower priced goods as opposed to the more
differentiated products proposed to be offered by the subject’s retailers.
Page 9
The Shoppes at Farmington Valley will benefit from minimal competition to the north, west,
and southwest. This, however, is due to a less dense population in this area.
Westfarms Mall, West Hartford
Westfarms is a 1,310,000- square foot super regional shopping center (> 800,000 sq. ft) located
seven miles southwest of Hartford, Connecticut. The shopping center straddles the towns of
Farmington and West Hartford, and is conveniently located at the intersection of I-84 and State
Route 9. The center opened in 1974 and was expanded in 1997 to include New England's first
Nordstrom department store. Westfarms features approximately 160 shops and services,
including Macy's, Macy's Men's Store & Furniture Gallery, Lord & Taylor and JCPenney.
Simsbury Commons, Simsbury
Simsbury Commons is a 256,000 square foot community shopping center located at the corner
of Route 44 and Bushy Hill Road in Simsbury, CT. The plaza originally opened in 1972, but was
then redeveloped in 2000-2001.12 The plaza houses 20 stores, including Super Stop & Shop,
Bob’s, Border’s Books, Bed Bath & Beyond, Chili’s. 13
Torrington Fair Plaza, Torrington
Torrington Fair Shopping Plaza is a 200,200 square foot community shopping center located at
the corner of State Route 202 and State Route 183 in Torrington, Connecticut. The plaza was
built in 1996 and houses Price Chopper, Wal-Mart, Petco, McDonald’s, and Sears Hardware. 14
12
Farmington Valley Mall: Avon, CT http://www.deadmalls.com/malls/farmington_valley_mall.html
13
Konover Development: Completed Development Projects. http://www.konover.com/projects/completed.shtml
14
Shopping Center Property for Sale – Torrington Fair. http://www.loopnet.com/property/107929/East-MainStreet/
Page 10
Reilly’s law of retail gravitation
One traditional technique used to estimate a retail market area is Reilly’s law of retail
gravitation, which identifies boundaries between trade areas.15 The gravitational model is
based on the following formula:
TAB =
15
where b > a
TAB =
Trade Area Boundary, which is measured as either the travel time or distance
from Store A to Store B
t=
Travel time (or total distance) between Store A and Store B
Sb =
Sa =
Size (area) of Store B
Size (area) of Store A
John M. Clapp and Thomas Curtin, Acorn Hill Mall: A Case Study for Retail Market Analysis, The University
of Connecticut Center for Real Estate and Urban Economic Studies, Original – January, 1991, Revised – January,
1997.
Page 11
This technique was used to compare the subject to the four other shopping centers closest to
the subject:
Competition
Address
Shoppes at
Farmington
Valley
110 Albany Tpke,
Canton, CT
Distance
from the
subject
miles
Time
(min)
Competitors
square
footage
Trade
area
boundary
(miles)
Breaking
point
time
(min)
425,000
Westfarms
Mall
500 Westfarms Mall,
Farmington, CT
13.91
25
1,310,000
5.0478
9.07
Connecticut
Commons
246 New Britain
Avenue, Plainville,
CT
12.69
24
570,000
5.8802
11.12
Simsbury
Commons
504 Bushy Hill Road,
Simsbury, CT
1.56
3
256,000
0.8783
1.69
Torrington
Fair
970-990 Torrington
St., Torrington, CT
11.39
18
200,200
6.7543
10.67
Bristol
Shopping
Center
80 N Main Street,
Bristol, CT
13.23
27
277,000
7.3202
14.94
*Miles and minutes calculated using Mapquest directions.
Westfarms Mall has the most bearing on the trade area boundary for the subject development,
limiting the delineated trade area towards Westfarms to 5.05 miles. This is due to Westfarms’
total square footage being far greater than the subject property’s proposed square footage.
The trade area boundary for the Torrington Fair Plaza was considered in opting to extend the
subject’s trade area to the west. Because the Torrington Fair Plaza has only 200,200 square
feet, with a lesser variety of stores than those planned for the subject, customers are more
likely to bypass the Torrington Fair Plaza to drive to the subject, particularly since there are no
other shopping center alternatives located to the west.
The trade area boundaries for Connecticut Commons and Bristol Shopping Center were not
taken into consideration as they are located south of Westfarms, as shown on the figure.
Customers near these two centers would be more likely to visit Westfarms than the subject,
particularly due to the tenant mix offered by Westfarms Mall. The trade area boundary for
Simsbury Commons was also not taken into consideration as it is much smaller than the
subject.
The adjusted trade area for the subject is outlined below as the bold polygon shape. The trade
Page 12
area has been extended to the west from the original 10-mile assumption due to a lack of
competition in this part of the state, and due to the lack of interstate access in this portion of
the state. The extension does not continue to the north due the proximity to Massachusetts,
and greater driving distances and time that would be incurred by customers to reach the
subject parcel.
The smaller circle around the subject represents the 5.05-mile trade area boundary between
Westfarms Mall and the subject, utilized to establish the barrier between Westfarms and the
subject. The circle around Torrington Fair Plaza represents the 6.75-mile trade area boundary
for the plaza used to extend the subject’s trade area to the west.
Page 13
Further emphasizing the trade area boundary between the subject and Westfarms, is a major
physical barrier; Avon Mountain. Avon Mountain is a major deterrent for customers from the
east to visit the subject, as Route 44 is the primary means for access. This is further illustrated
on the map below, where the shaded area by the green triangle represents Avon Mountain:
The blue pin represents the subject. The yellow pin represents Simsbury Commons, red pin
represents Westfarms Mall, the teal pin represents Connecticut Commons in Plainville, and the
green pin represents the Bristol Shopping Center. The green triangle represents the area of
Avon Mountain.
Page 14
Step 4: Supply Analysis
Market competition is calculated using the trade area polygon drawn based on location
analysis.
Supply Analysis Matrix
The below spreadsheet describes the subject property, the proposed Shoppes at Farmington
Valley and its competing community shopping centers within the defined trade area. As can be
seen, the inventory of retail shopping center within the TA is 2,191,200 square feet, inclusive of
the planned subject lifestyle center. The subject property, as proposed at 425,000 square feet
would represent 19.40% of the market.
Supply Analysis
Shoppes at Farmington
Valley, Canton
Westfarms Mall
West Hartford
Simsbury Commons
Simsbury
Torrington Fair
Torrington
Total
Gross Leasable
Area (Sq. Ft.)
Year
Built
425,000
% of Total
GLA
Comments
19.40%
Subject Property
1,310,000
1974
59.78%
Competitor 1
256,000
2000
11.68%
Competitor 2
200,200
2,191,200
1996
9.14%
100%
Competitor 3
Step 2.2: Consumer Profile
After the customers’ locations have been identified (the primary trade area), their demographic
characteristics are compiled. These data reveal the type of customers that the subject property
can expect to attract. The data will also be used to complete an inferred demand analysis and
as the basis for making a population and income forecast for the future demand step.
As the Shoppes at Farmington Valley are anticipated to provide a unique shopping and dining
experience, individuals who would shop here would include those living some distance from the
center as well as others who regularly come to the area, such as nearby workers.
Page 15
 Consumer Profile:
o Older population in the trade area - 48.70% of the population in TA is over 40 years old;
o Gender breakdown in the trade area - 51% female, 49% male
o Trade area is in affluent area -the weighted average household income is $81,212 per
year (based on 1999 income data from the 2000 census);
o Large percentage (48.27%) of retail sales for the trade area population is linked to types
of shopping proposed;
o Trade area is in a growing area, with an average population growth of 0.74%/year; and
o 63.99% of the trade area population commutes 30 minutes or less to work.
Age 30 to 39, 15.99%
Age 22 to 29, 6.65%
Consumer Profile - Age
40 and Up in Primary
Trade Area, 48.70%
Age 40 to 49, 17.94%
Age 18 to 21, 3.24%
Age 50 to 64, 17.07%
Age 5 to 17, 19.10%
Age 5 and Under, 6.33%
Age 65 and Over, 13.69%
Page 16
Commute Time for Population in Primary Trade Area
(minutes)
Worked at Home - 3.16%
Commute More than 90
Minutes - 1.72%
Commute
Less than 5 Minutes - 3.17%
Commute Time 60 to 89
Minutes - 4.58%
Commute Time 5 to 9 Minutes 11.39%
Minutes - 7.87%
Minutes - 4.55%
Minutes - 15.05%
Minutes - 3.30%
Minutes - 12.57%
Minutes - 12.91%
Minutes - 6.70%

Minutes - 12.60%
Tastes & Preferences - behavioral, motivational and psychological factors:
o Shops for convenience
 Middle aged, financially stable population is less likely to travel further to shop
 Convenient location off of State Route 44 provides an efficient way to shop, and is
easier to get to and shop around than a larger scale mall. Route 44 is also the main
east-west roadway through this portion of the state; therefore it is an ideal location
for a retail center.
o Shops for atmosphere
 Lifestyle center versus (interior) mall
 small town atmosphere
 outdoor shops and dining
 scenic layout to the property makes it comfortable to leisurely stroll and
shop.
 Older population is more likely to have a preference for smaller and quieter
shopping areas, with upscale retailers and amenities.
Step 3: Demand Analysis
Page 17
A level C demand analysis is included in the attached spreadsheet (MS Excel) files. Please note
that each spreadsheet contains multiple worksheets, including a forecast by buying power
analysis, a forecast by occupied space ratio to population and a forecast per capita
expenditure method.
Step 3.1: Analyze Trends
Trade Area Population & PCI Growth Summary
Population Growth
PCI Growth
10 Yr
7.38%
30.48%
1Yr
0.74%
3.05%
Page 18
Step 3.2: Demand Forecast by Buying Power Analysis
Function
Total Number of HH in Primary Trade Area
Current Year
(2000)
In 5 Years (2005)
In 10 Years
(2010)
34,736
36,042
37,397
$73,541
$85,461
$99,315
$2,554,491,843
$3,080,193,390
$3,714,081,665
36.52%
36.52%
36.52%
$932,900,421
$1,124,886,626
$1,356,382,624
48.27%
48.27%
48.27%
$450,311,033
$542,982,774
$654,725,893
80.00%
85.00%
85.00%
$360,248,827
$461,535,358
$556,517,009
$325.00
$325.00
$325.00
1,108,458
1,420,109
1,712,360
Plus Demand of Regional Type Retail Space from
Secondary Trade Area
169,991
256,218
308,946
Total Occupied Retail Demand from Primary and
Secondary Trade Area
1,278,449
1,676,327
2,021,306
% of Service /Office Use / Medical Use
10.00%
10.00%
10.00%
Plus Demand for Nonretail Use
142,050
186,259
224,590
1,420,499
1,862,585
2,245,896
74,763
98,031
118,205
1,495,262
1,960,616
2,364,101
Weighted Average HH Income
Total HH Income In Primary Trade Area
Percent (%) Income Spent on Retail
Total Retail Sales Potential
Percent (%) of Retail Sales by Subject Type Shopping
Center
Total Subject-type Shopping Center Sales
% of Potential Retention of Sales in PTA
Retail Sales Potential in Primary Trade Area from
Resident Household
Sales Required per Square Feet
Supportable Square Feet of Retail Space from
Households in Primary Trade Area
Total Demand for Occupied Sq. Ft. of Retail &
Service / Office Space from PTA and STA
Plus Frictional Vacancy at 5%
Total Forecast Demand (Sq. Ft.) in PTA
See the attached spreadsheets for detailed calculation data.
Page 19
Step 3.3: Demand Forecast by Ratio Method
Page 20
Step 3.4: Forecast Demand by Per Capita Sales Method
Function
Current Year
(2000)
In 5 Years
(2005)
In 10 Years
(2010)
Population in Primary Trade Area
89,207
92,561
96,041
Regional Shopping Center-type Retail Sales per Capita
$8,364
$9,720
$11,295
Total Neighborhood Retail Sales Potential
$746,109,507
$899,655,083
$1,084,799,564
Percent (%) of Retail Sales Retention in Primary Trade
Area
80.00%
85.00%
85.00%
Neighborhood Retail Sales Expected
$596,887,605
$764,706,820
$922,079,630
Required Sales per Square Foot
$
325.00
$
325.00
$
325.00
Supportable Retail Square Feet from Resident
Population In Primary Trade Area
1,836,577
2,352,944
2,837,168
Plus Demand for Neighborhood Retail from Secondary
Trade Area or Other Sources
255,806
385,563
464,910
Total Occupied Retail Square Feet Demand from
Primary and Secondary Trade Areas
2,092,384
2,738,507
3,302,078
Percentage (%) of Nonretail Service / Office Use
10.00%
10.00%
10.00%
Plus Demand for Nonretail Service Office Square Feet
232,487
304,279
366,898
Total Demand for Occupied Retail and Service / Local
Office Sq. Feet in Primary Trade Area
2,324,871
3,042,785
3,668,975
Plus Frictional Vacancy at 5%
122,362
160,147
193,104
Total Demand for Retail / Service / Local Office Sq. Ft.
in Primary Trade Area
2,447,232
3,202,932
3,862,079
Step 3.5: Reconcile Findings and Forecast Final Demand
Each of the three demand forecasts utilized have individual strengths and weaknesses. For the
demand forecast by buying power analysis, the strength is that the data is verified, though the
data is supply oriented and historical (past trends may not be indicative of future results). Too,
the household income and buying power data is based on Northeast U.S. macro data versus
statistics for the specific MSA or trade area.
Page 21
The ratio and the sales per capita demand methods’ advantage is that they combine both
inferred demand methods and fundamental methods to reach a conclusion. However, the
weakness with the ratio method is that it does not segment all of the factors that make up
retail demand. For example, what is in demand today may not be in demand five or ten years
from now. The weakness with the per capita sales demand analysis is the selection of proxy
sales per capita.
The conclusion from the three demand analyses is the present supportable occupied square
footage for the trade area is 1,844,420, prior to the Shoppes being constructed; with 2,130,587
square feet and 2,263,603 square feet projected in 5 and 10 years, respectively.
Step 5: Market Equilibrium / Disequilibrium
Residual Demand Analysis
Supportable Occupied Square Footage
Analysis Type
Current Year
(2000)
In 5 Years
(2005)
In 10 Years
1
(2010)
Average
Increase Per
Five Years
Buying Power Segmentation
1,420,499
1,862,585
2,245,896
412,699
Ratio Method
1,766,200
1,832,609
1,901,515
67,658
Per Capita Sales Method
2,324,871
3,042,785
3,668,975
672,052
Average of the Three Methods
1,837,190
2,245,993
2,605,462
384,136
96,694
118,210
137,130
Total Forecast Demand from PTA and
STA
1,933,884
2,364,203
2,742,592
404,354
Less Existing Competitive Space
1,766,200
1,766,200
2,066,200
150,000
Plus 5% Frictional Vacancy
Net (Excess) Shortage of Supportable
Retail Space
167,684
598,003
676,392
254,354
1
Competitive space in ten (10) years includes an additional 300,000 square feet of retail space in the PTA.
Page 22
Step 6: Forecast Subject Capture
Pro-Rata Technique
In Five Years
Square Foot
425,000
Existing Shopping Centers in Primary Trade Area
2,191,200
Current Potential Demand (Average of 3 Methods)
2,245,993
Subject Capture Rate
19.40%
Indicated Subject Capture
435,628
Proposed Area for Shoppes at Farmington Valley
425,000
%
19.40%

Based on the Pro-Rata Share Technique, the subject’s capture rate is 19.4%. This means
that it should draw 19.40% of the market, since it represents 19.40% of the competitive
space within its trade area.

When applying the capture rate to the average of the three methods used to forecast
potential demand over the next five years, The Shoppes should be able to support
approximately 435,628 square feet of retail space.
o Because the Shoppes’ proposed area is only 425,000 sf, it should reach close to
full occupancy.

In order to support the proposed 425,000 sf, the Shoppes would need to maintain an
18.90% capture rate over the next five years. This means that the competitive space
within its trade area must not exceed 2,245,993 square feet in five years.
Page 23
Pro-Rata Technique
In Ten Years
(assuming additional development)
Square Foot
425,000
Shopping Centers in Trade Area + 300,000 Sq. Feet
2,491,200
Potential Demand in 10 Years (Average of 3 Methods)
2,605,462
Subject Capture Rate
17.06%
Indicated Subject Capture
444,493
Proposed Area for Shoppes at Farmington Valley
425,000
%
17.06%

When assuming an additional 300,000 square fee of competitive space in 10 years, the
subject’s capture rate decreases to 17.06%.

When applying the capture rate to the average of the three methods used to forecast
potential demand over the next ten years, The Shoppes’ supportable square footage is
444,493.
o Because the Shoppes’ proposed area is 425,000, it may be viable.

In order to support the proposed 425,000 sf, the Shoppes would need to maintain a
16.3% capture rate over the next 10 years. This means that the competitive space
within its trade area must not exceed 2,605,462 sf in 10 years.
Page 24
Gravity Analysis
A Gravity Analysis is a quick estimate of market capture (market share) and estimated sales for
a retail center that focuses on distance (straight line) and attractiveness (occupied floor space)
of a shopping center.
This model is based on Newton’s hypothesis that interaction between two objects is directly
proportional to the mass of the objects and inversely proportional to the distance between the
two objects. Therefore, as distance increases, all other things being equal, the interaction
between the two objects decreases. Conversely, as mass increases, so does the interaction
between the two objects (Thrall, 1997)
G = Gravitational force between two masses
Mi, Mj = Masses
G = Gravitational constant
D = Distance between two masses
i,j = locations or bodies
For the project analysis we are looking at the distance from where customers live to the area
they like to shop with the assumption that the greater this distance decreases the likelihood
that people will shop at a given center.
For the analysis, the team identified the Subject property and its 2 competitive shopping
centers within the trade area. For population and income of the community, 2000 Population
and Household Census were used.
Using the ArcView measuring tool, we identified the distance between the center of census
tracks to each shopping centers. We assumed that the population is located at the center of
each census tract for calculation purposes. The results are shown in the maps below.
Page 25
Fig. Trade Area Census Tract and Shopping Centers.
Description on the Analysis
Assumptions:
Percent of Income spent at Shopping Center = 5%
Gross Sales Multiplier = 2
Distance: The Distance column shows the distance (in miles) from the retail property to the
center of the census tracts within the trade area.
Gravity Score: The Gravity Score is calculated by dividing the center’s square footage by the
distance.
Market Share: Market Share is equal to the gravity score for a given tract, divided by the sum
of all gravity scores for that tract (Considering all the competitors and subject Property).
Total Income: Total Income is equal to the population for a tract multiplied by its per capita
Page 26
income.
Total Sales: Total sales on a given census tract is calculated by multiplying Total Income of the
Census Track and Percent of Income spent at Shopping Center
Estimated Sales: Estimated Sales is calculated by multiplying the market share by the total
sales from that tract.
Estimated Value: Estimated Value is calculated by multiplying the Estimated Sales for each
census tract and the Gross Sales Multiplier
Exhibits One through Four outline the set of spreadsheets that provide the Gravity Analysis for
the Shoppes at Farmington and its 3 competing shopping centers: Simsbury Commons,
Westfarms Mall and Torrington Fair.
Summary of Gravity Analysis
Total Sq. Ft
2,191,200
Total Value
$258,025,172
Value / Sq. Ft
$118 / Sq. Ft.
Gravity Analysis results for the Subject Property – Shoppes at Farmington Valley
Estimated $ Sales
$30,505,457
Est. $ Sales Value
$61,010,914
Value / Sq. Ft
$144 / Sq. Ft.
% of Subject Area compared to Trade Area
% of Sales within the Trade Area
19.40%
23.65%
Page 27
Summary & Recommendation:

The results from our analysis of the market using Fanning’s 6 step method suggest that
development of The Shoppes at Farmington Valley may be a viable project, however the
analysis is subject to limited assumptions as further described.

Although, there is limited similar competition located near the subject, access is restricted
by Avon Mountain and a lack of interstate highways in this area.

Moderate population growth is projected for this area, however due to the sparse existing
population in the area, these figures remain low as compared to the rest of the state.
Significant per capita income growth is projected for the area, however these projections
are more vulnerable to future changes in the economy.

Based on both the Residual Demand Analysis and the Pro-Rata Technique, there appears to
be sufficient demand to support subject Property "The Shoppes", however the results vary
widely and are based on the average of the three demand forecasts used. The results of
the Per Capita Sales Method greatly exceed those of the Buying Power Segmentation and
the Ratio Method and therefore have a greater effect on the average of the three.
o If either the Buying Power Segmentation or Ratio Method figures were used in the
Residual Demand Analysis and the Pro-Rata Technique, then the subject project would
not be supported by demand.

The Gravity analysis of the subject property suggests a market capture of 23% of the sales
in the trade area and estimated sales of 30 million / year. It also suggests an estimated
value of $144 / Sq. Ft. On the positive note, even though the subject area is only 19% of the
total trade area, it supports 23% of the trade area sales.

Due to the significant variances of the demand estimates without a significant shortage of
existing supply, we do not recommend development of The Shoppes at Farmington Valley.
Page 28
Appendix A
8-Step Overall Development Plan
The developer must understand the legal nature of the property interest as well as relevant
use land regulations and regulatory process. Relevant cash flow analysis is also important to
understanding feasibility and profitability.
A specific development concept at a specific site must emerge. Once a specific use has been
chosen for a site the development process follows an eight step process:
1. Establishing Site Control
Dream case for developer owns the lot outright, no debt.
Option: buy in future at predetermined price.
Bring in a future tenant as a development partner in order to manage equity for land
acquisition. If the tenant is to occupy a large portion of the property the risk of development
is further reduced.
Build to suit: build to tenants spec. Useful for restaurants and fast food chains.
Ground Lease: only the initial land rent must be paid out before development begins.
Provides land owner a long-term inflation-protected income (Rockefeller Center/Columbia
University).
2. Feasibility Analysis, Refinement, Testing
Site should be under control.
Financial Feasibility: compare PV of project to its cost, classic NPV computation. If NPV is
marginal may need additional market research to narrow the range of feasibility outcomes
and project concept. This information is costly. Negative NPV, is project feasible in any
configuration?
Environmental Consultant, Geologist: soil problems, environmental problems, ecological
complications, seismic concerns, hydrological concerns, anthropological or historical
sensitivities. Wetlands, sensitive wildlife habitat, endangered Species Act., ancient ruins.
This is done as part of an Environmental Impact Report/Statement and is typically required by
the local regulatory agencies prior to issuing the necessary development permits. If there are
questions the feasibility study must be reconsidered.
A project is evolutionary in nature.
Page 29
3. Obtaining Permits
Site Plan Review, Zoning Changes. land use change, environmental impact.
To avoid delays the developer must lay the groundwork in advance for neighborhood
cooperation (as opposed to opposition). This can often be done offering parks, overly
generous provisions for buffering (land use transition zones).
4. Design
At this point the developer has control of the property. Time to turn initial concept drawings
into a complete plan. Architect comes in full time, compensation. Land Planner, hydrologist,
architects, market consultants, engineers, soli engineers, others. Landscape Architect:
topography, soil, vegetation. Engineers: structural, soils, civil, mechanical, electrical, …
5. Financing
Combination of debt financing and equity capital. Often will also need gap financing through
mezzanine debt.
 Land Acquisition Financing: developer will be reluctant to commit substantial funds at
the beginning of the project (opportunity costs). Banks cannot lend on land which
generates no cash flow. "Contact for Deed" or "purchase money mortgage," or bring
land seller into the venture.
Financing is not sufficient, significant soft costs. LLC is the most common structure.
 Construction Financing: bank, rate tied to prime of LIBOR. Costs of land, soft costs,
hard costs. Loan dispersed to developer over time often based on invoices.
6. Construction
Non-government projects usually completed through negotiation. Often there is a maximum
cost-plus fee, if the cost runs higher than the maximum the developer and general contractor
split the overrun; if the cost runs less they split the savings.
Design-Build: architect and general contractor are one.
Fast-Track: building before architect has completed design.
Coordination of Contracting: nothing too interesting.
Page 30
7. Marketing and leasing
Usually done through an external broker who must be selected with care. Broker must be
established in the relevant market. Should also have special knowledge of the market and
tenants. Broker should have a stake in the product to encourage enthusiasm.
Developers must recognize the value of advertising and public relations. Must build
relationships with regulatory officials early in the process.
8. Operation
Once the project has been largely rented it is deemed in the operational phase. Operational
management is essential to maintaining and increasing property value. Cannot be overemphasized.
Page 31
Sources
Clapp, John M., Curtin, Thomas, Acorn Hill Mall: A Case Study for Retail Market Analysis, The
University of Connecticut Center for Real Estate and Urban Economic Studies, Original –
January, 1991, Revised – January, 1997.
Consumer Expenditure Survey – Table 8, 2000
Fanning, Stephen F., MAI, Market Analysis for Real Estate (Appraisal Institute, 2005) 192.
Farmington Valley Mall: Avon, CT http://www.deadmalls.com/malls/farmington_valley_mall.html
Konover Development: Completed Development Projects.
http://www.konover.com/projects/completed.shtml
Lackey, Jaime, “Bringing the Lifestyle Format to St. Louis,” Shopping Center Business, April 2008,
< http://www.shoppingcenterbusiness.com/articles/APR08/story3.shtml>
“Lifestyle center (retail)”, http://en.wikipedia.org/wiki/Lifestyle_center_(retail)
Loopnet, Shopping Center Property for Sale – Torrington Fair.
http://www.loopnet.com/property/107929/East-Main-Street/
Mulartrick, Dale, Silver, David and Anderson, Lawrence, “Lifestyle Centers Capitalize on
Shoppers’ Need for Speed,” Commercial Investment Real Estate,
http://www.ciremagazine.com/article.php?article_id=182
EXHIBIT ONE
Page 1
EXHIBIT TWO
Page 2
EXHIBIT THREE
Page 3
EXHIBIT FOUR

Retail Shopping Center Market Analysis

Transcription

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