Ingredient 2: Market Dynamics
To familiarize myself with a market, I usually start with a certain radius analysis, considering topography, rivers, state lines or traffic patterns. Be sure you understand who is driving by your site, where they live and work.
Your feasibility study should identify your customers, including age and gender, and whether they are homeowners or renters. Different profiles demand different strategies. Recent or projected growth will impact your overall approach to the market. Getting to know customer profiles also helps you understand the local competition that already serves them.
I’ve never really seen a good rule of thumb for determining the total square footage a market can absorb. Many markets have absorbed between 5 and 6 square feet per capita; some markets thrive with 12 square feet per person while others flail with 4. Your feasibility study should provide you with a quantified level of supply and demand.
In evaluating the competition, older “first-generation” facilities do not factor into the competitive analysis the same as new stores. Every facility in the market should be qualified according to individual competitive strength:
- Is the manager professional and a good salesperson?
- Is the site clean? How about the office?
- Is the location convenient to the local population?
- Does the facility offer appropriate products (i.e., climate control, packing supplies, move-in truck)?
- What are the features and benefits, and are they well communicated to prospective tenants?
- What pricing strategy is used (market rates, concessions, premiums)?
- Is there a strong marketing campaign?
Too often, hungry developers begin with a supply number in mind when analyzing a market. Even if there are only 4 square feet per person in the market, that number alone does not quantify what can be absorbed. What drives your future bottom line is demand. A thorough feasibility analysis will give you a picture of what the market demands, needs and can likely absorb over time. Rate and occupancy trends can show whether a market is overbuilt or undersupplied. Stay away from areas with declining rents and occupancies. Moreover, know your customers and competition before you move forward with a big project.