This post was written by Dan Jackson, a 2012 UST MBA graduate. Dan completed many of his electives in real estate including participation in the spring 2012 REAL 714 International Real Estate Development course in the Cayman Islands.
The Minneapolis-St. Paul Business Journal recently reported that Neiman Marcus, a high-end retailer in downtown Minneapolis would be closing its doors in July of 2013. This is not the first time that a high-end retailer has decided to close its doors or had to alter its image in downtown Minneapolis. The article stated that in 2004, Saks Fifth Avenue reconfigured its main store concept into Saks Off Fifth, a lower-priced version of the well-known retailer.
With the announcement of this closure, I got to thinking about the possibilities of a tenant that could fit into the space that has been held by Neiman Marcus for about 20 years. I reflected on a moment from my studies at St. Thomas. One particular UST real estate course (REAL 746), introduces students to the techniques used to determine the best and highest use of a site from a market analysis and feasibility perspective. It is a course that I took this past spring. While there were many techniques that we learned throughout the course of the semester, six factors immediately come to mind when trying to provide market analysis for a particular site. I’d like to walk you through each of these six factors and highlight important elements about the site that relate to each of these factors, but ultimately will leave it up to you to decide what kind of tenant(s) would be a good fit for a replacement.
The market analysis process reviewed during the semester consisted of six points that guide real estate professionals through a market and feasibility analysis of a particular site. The six steps, as outlined here will be used to provide a general idea and outline, but will not go too much in depth, given the length of this post. The purpose of this post is to examine and look for trends that will help real estate professionals begin to identify the next best tenant(s) for this space. The six steps that I refer to here are specifically related to identifying a space for a shopping center, but similarities exist between this process and the processes for other types of properties.
Six steps within the Market Analysis Process:
1. Analyze the subject property: Be able to analyze the site and the building. Analyze the location of the subject property.
The current site of Neiman Marcus sits on Nicollet Avenue and 5th Street. This area is an ideal location, given its proximity to the Nicollet Mall Station light-rail stop on 5th street. It is also close to the center of the CBD (8th and Nicollet), providing great pedestrian traffic in all directions.
2. Analyze the market of users: Define the trade area, profile customer characteristics.
The current area around the site is filled with commercial businesses and the typical profile of a customer is a business person working in the downtown area. The residential population has increased over the years and this has created more of a demand for convenience type products.
3. Forecast demand: Analyze trends, forecast number and size of households in the trade area, estimate household income and estimate the percentage of retail purchases.
Plans and construction for many new luxury residential units are well underway, which would increase the number of people living in downtown who are close to this particular site. Projects such as the luxury high-rise apartments by Chicago developer Magellan, or the high-end Nicollet residences by Opus Development Corporation (which will sit directly across from the current site of Neiman Marcus) will provide a new demographic to target for the next new users of this space.
4. Measure competitive supply: Inventory existing competition, competitive properties under construction and other competitive space.
There are currently few other high-end retailers in the downtown area, but it is important to consider other retailers within the area. A new retailer in this space would possibly compete with the other shops that make up the Gaviidae Commons Shopping Center or retailers that are down the street on Nicollet Mall (Target, the shops of the Crystal Court in the IDS center and the shops of City Center). All of these shops are located closer to the center of the CBD, which could impact the amount of time residents have to travel.
5. Analyze market equilibrium and disequilibrium: Estimate residual or marginal demand.
In contrast to the above point, a new retail venue at this location that is attractive and provides attractive price points could help to balance the congestion around the center of the CBD. An attractive retail tenant could help to revive this area of downtown, providing another option and steady flow of traffic to this area.
6. Forecast subject capture: analyze capture by inferred methods; capture of comparable properties, secondary data surveys and provide a local economic analysis
This point can be difficult to summarize without having completed the necessary research, but it is an important step to consider in the market analysis process.
These are just a few helpful steps from a market and feasibility analysis standpoint to help begin the process identifying the next potential tenant(s) for the space that will be vacated by Neiman Marcus. What other information can you contribute? Who do you think will be the best new tenant(s) for this space? Share your thoughts!!