As we’ve all heard in the news, it is becoming increasingly more difficult to succeed in the retail industry due to growing online sales, and delivery services. In the commercial real estate business, you must take this into consideration when planning any new development as you want your clients to succeed.
One of the first steps to take when determining the feasibility of a planned project is to complete a retail feasibility analysis which consists of several different analyses; a market analysis, a site analysis, a legal analysis, and a financial analysis.
A market analysis studies what businesses are already in the area to determine what particular needs are not being met by the current retailers. The difference between the supply and demand of a certain retail category is known as the retail gap.
Alongside this, the demographic and economic profile of the area is studied to determine the types of retail that would have the best chance of being successful.
A site analysis also considers the demographics and economics of the area to determine potential users of the retail including the surrounding residents along with the local business.
Oftentimes retailers will want to know the daytime population, or the amount of people who work within a certain number of miles of the site, before committing to a particular property.
Another important part to be researched during your retail analysis are the local codes and laws that could potentially affect the ability to do the planned project. This could be anything from zoning, to the type of signs allowed on the property or parking ratios.
Finally, you come to the financial analysis to make the final decision of whether the potential development will be profitable enough to justify all the hard work that must go into making it a reality. There are several approaches to predicting the financial feasibility of a planned project, but one of the most popular is the cost markup approach.
The cost markup is the correlation between the cost of the project and the profit you expect to receive, expressed as a percent. Profit is the difference between the market value (what you hope to sell it for) and how much it cost to develop.
Cost markup is calculated by dividing profit by project cost.
These analyses combined give you the retail feasibility analysis to help you determine whether or not to proceed with the proposed development or business plan.
Disclaimer: This information is provided for informational purposes only, and should not be viewed or construed as investment advice.