Defining a Trade Area page 1
FNCE 5534
Defining the Trade Area
A trade area (TA) is a geographical area surrounding the subject site (e.g., store or shopping mall) that will provide a substantial portion of the customers for the real estate project. The trade area is an important concept because customers are unevenly distributed across space. It is necessary to find a group of nearby customers who need the services that will be provided. The TA analysis asks WHERE potential customers are likely to be located. It builds on the transportation linkage to find the area that will provide most of the demand for the proposed real estate services.
A simple trade area consists of a circle around the store or shopping mall. It might take a typical customer living within the circle up to 45 minutes to drive to the mall. This circle is a rough approximation to the trade area.
The TA is divided into the primary trade area (PTA), typically supplying more then one-half of the customers, and the secondary trade area, providing 20 to 30% of customers. A typical customer within the primary trade area should patronize the subject property more frequently than a similar competitor. Those customers outside the primary and secondary trade areas, that is those from the "fringe area," typically supply less than 15% of the customers.
A basic principle is that the trade area boundaries are extended out along interstate highways because transportation is easier on the interstate. TA boundaries are contracted (i.e., drawn closer to the mall) where there are bad roads, highway construction, bridges or other bottlenecks.
Trade area analysis considers the impact of competition on the customers for a proposed property. Competition limits the TA by drawing customers away from the subject property. For example, families that live next to a major shopping center are likely to do most of their shopping at that center; they are unlikely to shop at a competing center. So TA boundaries are usually drawn in-between major shopping malls.
Draw a Trade Area in ArcView- A CoStar map runs ArcView
Use the draw tools to draw a trade area. Use the polygon tool: click the tool that looks like a 6-sided figure. Click on the map and hold, pulling the mouse over one edge of your polygon. Lift your left finger and then left click again to start another edge of your polygon. Double click to finish. Use the vertex edit tool to move the vertices (corners) of your polygon, or to create a new vertex.
After you are satisfied with your trade area, you can select customers and/or competitors that are within your trade area. If necessary, make your graphic active by clicking on it with the pointer tool.
Example
For example, draw in the GIS an approximation a shopping center trade Area; the TA will supply most customers. Consider the competitors as limiting the trade area. Then select all towns within the trade area and summarize their population and income.
More advanced trade area analysis can be done with gravity analysis and with the amenity index, AI, concept. For example, use the amenity index to shift the trade area boundary lines. If the AI shows that the cluster of shopping around your SS is better (larger, closer to interstate, more parking per square foot, better stores), enlarge its trade area by moving the boundary towards the competitive cluster. Move it towards your SS if the competitor has an advantage.
A bridge is a bottleneck; customers will be reluctant to cross the Connecticut river. Move the boundary towards any bridge between your SS and its competitor. If there is no nearby competitor (e.g. down Rte 2, or due West of the Connecticut River), limit the trade area to 25 miles; stretch it to 35 miles along interstate roads (faster travel).
A more advanced project would use the interstate roads to find a trade area that is within a 45-minute drive. Figure 60 miles/hour on the interstates, 30 miles/hour on other roads (i.e. any Census Tract not on the interstate to the nearest interstate entrance). Adjust for bridges, construction or other bottlenecks and competition.