Abstract:
Market analysis is a key component of a sound real estate investment analysis process. Traditional market analysis techniques do not reflect complex trade area attributes and socio-economic realities, such as retail market structure, degree of diversity within the retail market structure, supply-demand saturation levels, the spatial distribution of demand and the composite effect of trade area growth variables on future asset performance.
The validity of central place theory, among other things, is analysed. It was revealed that the theory of central places is not supported by its base research and fundamental errors exist in the mathematical relationships that were developed to support this theory. These errors are perpetuated in various urban and regional planning theories, market analysis techniques, models and retail/business hierarchy documents and policies � including but not limited to the research of Berry on urban centres. Notwithstanding these errors, Christallerian principles of central place theory are still widely accepted as correct and remain influential in theory and practice.
As basis for the analysis of central place theory, the Fischer-DiPasquale-Wheaton (FDW) model is used. This model conceptualises the relationship between variables that represent the micro-foundations of economic behaviour in property and asset markets. Primary research on stated and revealed preferences by consumers and shopping centre owners revealed further shortcomings of central place theory. Incorrect assumptions associated with the nearest centre postulate and the so-called �six-for-six� principle are interrogated, together with the diseconomies of centralisation/concentration (i.e. increasing costs with greater concentration) which appear not to have been considered by Christaller. A number of qualitative and quantitative research techniques are deployed, including interviews with shopping centre owners and developers, proportionally stratified consumer surveys, statistical analysis of shopping centre performance data and analyses of the frequency distribution of shopping centres.
Based on the findings, an improved methodology for the analysis of retail trade areas is presented. The improved methodology incorporates four techniques, namely the Multi-Criteria Saturation Index (MCSI), Retail Diversification Index (RDI), Demand Density Analysis (DDA) and Growth Matrix (GM). A test for validity was developed, based on a comparison of actual versus forecast shopping centre sales data. The negligible difference observed between actual and forecast sales for the centres analysed validates the proposed improved methodology for the analysis of retail trade areas.
