The location of a business can spell success or demise. Some people have perceived the brick and mortar retail market share as in decline, but the retail sector remains persistently competitive and resilient. One of the most important decisions retailers can make is location.
The Retail Industry: Challenges and Opportunities
In 2023, in-store or brick-and-mortar retail sales in the U.S. are projected to increase by 2.9% above the $7.139 trillion mark reached in 2022. As retailers continuously face fluctuating markets and elements outside their control, strategic decisions must be made to protect margins and ensure growth. One of the earliest and most strategic decisions any retail business makes is location.
Read on to learn the importance of location in real estate, what factors to consider when looking for a retail space, types of retail spaces, and a retail site selection checklist.
Covered in this article:
- What is the Meaning of Location in Real Estate?
- 4 Important Factors When Looking for Retail Location
- 5 Types of Retail Locations With Examples of Retail Spaces for Lease
- Retail Site Selection Checklist
What is the Meaning of Location in Real Estate?
Location, location, location: the three topmost priorities of any real estate decision. Location in real estate impacts property values, and real estate markets and submarkets offer different features.
When choosing a retail space or an office space, location is key. Nearby property values, position along major highways or thoroughfares, desirable addresses, and amenities are all part of calculating the value of a commercial property.
The importance of retail location cannot be overstated. The identifiable metrics for predictable sales include location-based analyses like foot traffic, proximity to similar businesses, parking ratios, local population demographics, and ease of access. All of these are related to where a retailer chooses to lease a building.
4 Important Factors When Looking for Retail Location
When it comes to choosing a retail space, the decision is more nuanced than leasing an office space, or choosing a residential neighborhood. Retailers should prioritize location, here are the four factors that matter most:
1. Local Market: Present and Future
A first point of consideration is the real estate market or submarket in which a retail store is located. There are ample opportunities to assess a location’s current state, which of course should be done, but retailers shouldn’t stop there. In fact, what the broader real estate market or submarket is projected to do is especially important.
City records and publicly disclosed documents can provide insight into how similar businesses perform in a given area. Analysts, either CRE professionals or location data specialists, can offer forecasting. After all, settling into a retail location is a big undertaking. Ideally, the area you choose should have some staying power, and be a profitable decision for more than just a couple of years.
2. The Business Environment
This was alluded to in the “present and future” point, but a full scale analysis of both the macro environment and micro environment should be conducted before settling on a retail location. The exercise extends beyond real estate markets, and looks at the broader business climate of a given area. Texas’s business-friendly culture is part of the reason so many businesses are moving to Texas.
- Is an intended location business-friendly?
- What is the broader business climate: are businesses moving in or leaving?
- What is the general economic climate?
- Is the tax structure good for businesses?
- What is the residential real estate market doing in the area: growing or shrinking?
All of these factors will impact your retail business’s ability to thrive in a given area, and should be counted in as you decide where to land.
3. Population Demographics
In a brick-and-mortar retail environment, local population and demographics are vital statistics. Foot traffic may well be the lifeblood of your daily business. This decision is intimately related to the type of retail business and type of retail location you will have, which will be covered in a moment.
Demographic research should include analysis of the following points:
- Age/generation and concentration of each type
- Race or ethnicity
- Income (median household income)
- Employment
- Political affiliation
- Education
- Marital status
- Parental status
- Home ownership rates
- Retail habits and discretionary versus non-discretionary spending
It is important to know that retail consumer behavior regularly changes, impacted by economic and marketplace dynamics. Demographic research may be something that merits ongoing surveys, but it is especially important early in your retail site selection process.
4. Visibility and Accessibility
Last but not least: the features of the building location and the building itself. This is of equal importance to the first three considerations. Retail site selection being all about location, the location itself must be visible and accessible.
Visibility relates to things like how the building is positioned to be seen from the street and what kind of signage is available.
Similarly, it is important to understand how accessible a building will be. While accessibility for disabled persons is a point of legal compliance, this treatment of accessibility is more about traffic. Foot traffic is one of the most important key performance indicators (KPIs) or metrics for performance that predict profitability for a retail location.
Accessibility can be by foot or by vehicle, and some of these descriptors — and how valuable they are — will vary depending on whether a site is metropolitan, urban, suburban, or rural.
5 Types of Retail Locations
There are numerous types of retail stores. The most common are:
1. Chain store — This retail store type was popularized in the 1920s and offers a high volume of merchandise, which is typically discounted below single unit retailers. Occupying an increased market share, these are often typified by big box brands.
2. Department store, mall, or shopping center — These are grouped because they are often located either in close proximity or in the same building. They may be outdoor/open-air or completely enclosed in a large shopping center. Retail locations like this benefit from the grouping, drawing shoppers in for a mix of moderately and high-priced or luxury goods, and often securing a lengthy shopping session from the average visitor.
3. Supermarkets — Self-service, customer checkout, high-volume, and large: supermarkets carry both food and nonfood products. They offer a large assortment of goods at low prices.
4. Warehouse retailers — Costco may be the best-known warehouse retailer, followed by Sam’s Club or even Aldi’s. These are housed in large facilities with bare-bones amenities or customer service options, often providing food or non-food goods in wholesale quantities.
5. Discount retailers — Some of the most successful retailers of the last decade have been discount retailers like Marshalls, Grocery Outlet, Ross Dress for Less, and T.J. Maxx. These are traditional retail stores that usually offer extended hours, simple fixtures, and limited selection at steep discounts.
The State of Retail in Houston, Texas
According to CBRE’s 2022 Q4 Retail Houston Report, Houston recorded 236,000 square feet of net absorption. In Q4, retail supply was boosted by 854,531 square feet with 30% of the new product located in the far Northwest submarket. Overall, the occupancy rate increased 200 basis points year-over-year.
“Despite combatting mandates, labor shortages and now rising food costs, national restaurant concepts are still pushing to expand their presence in Texas.”
Wade H Greene IV, CCIM, Principal, Director of Retail Services, Houston
Retail Site Selection Checklist
Knowing how to analyze a retail site is the right preliminary step. Once you begin to tour retail spaces, it is important that you have a set of criteria to bring to that process. Here are some of the key points that we recommend adding to your retail site selection checklist:
- Area
- Customer base matches ideal customer profile
- Easy access to major roads
- Proximity to high-traffic/high-volume businesses
- Growing market or submarket
- It is a good neighborhood for current and future business
- It is a safe area
- Accessibility
- The location is along major routes and daily commutes
- Good parking ratio
- It is road and foot traffic accessible
- Traffic flow directions and concentration will provide an advantage
- Infrastructure
- The building itself is in the right condition, or the price is right for renovations/customizations
- All systems are operable
- There are adequate employee spaces
- There are adequate restroom and other essential facilities
- Visibility
- Signage available
- Street visibility
- Traffic visibility
- Lease terms and site financials
- Learn more about Negotiating a Commercial Lease
- Learn more about What Percentage of Sales Can You Expect to Go for Rent
For lease terms, you will want a professional property manager or broker to assist you in a full review of all of the legal ins and outs of a retail space. There are many ways to set up a retail lease, and you want to be sure that the lease you sign gives you the right freedom and terms.
*Page updated on February 2023
