Give this one a try before Thursday's class...

Employment growth in total market area:                  5,000 over the next 4 years

PE ratio:                                  2.75

Average household income:    $40,000

Percentage of spending:          30% taxes; 42% nonretail; 5%

 savings; balance retail

            Average household size:         3.10 persons

            Average sales PSF:                 $235

            Primary market leakage:          24% (Compute the leakage on the sf of

 primary retail space needed)

            Primary market capture:          10% of primary retail sf (Do not apply the

leakage to the secondary)

            Frictional vacancy:                  7%

            Proposed supply in market:     93% current occupancy; 210,000 sf proposed

1.                  What is the projected growth in population per year in the market?

2.                  What is the projected growth in total households over the next 4 years?

3.                  How much total space in the market area will be demanded as a result of the total growth in this market area before frictional vacancy?

4.                  What is the residual demand for retail over the next 4 years in this market?

Retail Market Analysis Solution

Solution:
1. Total income = 11,000 x $35,000 = $385,000,000
2. Retail sales potential = $385,000,000 x (1 - 25% - 45%) = $115,500,000
3. Retail sales by subject type = $115,500,000 x 20% = $23,100,000
4. Sales retention = $23,100,000 x 80% = $18,480,000
5. Primary sales sf required = $18,480,000 / $250 psf = 73,920 sf
6. Plus: Secondary sales = 73,920 x 1.15 = 85,008 sf
7. Plus: Frictional vacancy = 85,008 / (1 – 5%) = 89,482 sf
8. Less: Existing, U.C., propose = 250,000x20% + 50,000x25% + 40,000x15% = 68,500 sf
9. Shortage of space (next 5 years) = 89,482 sf – 68,500 = 20,982 sf

Office Example Solution

Solutions:
1. Total employment growth = 20,000 / 1.75 = 11,429
2. Total occupying office = 11,429 x 20% = 2,286 persons
3. Office demand = 2,286 persons x 225 sf per person = 514,350 sf
4. Capture in subject market = 514,350 x 25% = 128,588 sf
5. Total demand for Class B in market = 128,588 sf x 50% / (1-5%) = 67,678 sf
6. Less: Existing, UC, proposed = (50,000 sf x 20% vacant) + 25,000 sf = 35,000 sf
7. Residual demand = 67,678 – 35,000 = 32,678 sf needed

Variations:
1. There may not be a frictional vacancy given. Compute demand without making up a vacancy.