Site Selection
Site selection is the first step of the lease process that needs to be taken seriously. There are several components that make up the bulk of the site selection process, such as demographics, driveby traffic vs accessibility, rent rates, and multiple trade areas.
Target Demographics
Through analyzing your current portfolio’s demographics or portfolios of other similar successful businesses in your industry, you can ascertain the variables that make the most sense for your next location. Using these variables, you can avoid areas that may present populations that do not have the propensity to utilize your services.
The two most important demographics are population density and income. These numbers vary widely from region to region, so the best method is to compare these numbers between your potential target sites.
It’s better to use someone on your team or a broker you trust to find the most accurate numbers than to rely on the promo flyers.
Take radius into account, too. The site may have fantastic 5 mile demographics, but if your customers don’t travel more than 2 miles to come to your location then this may not be relevant.
Drive By Traffic vs Accessibility
There is an inverse relationship with drive by traffic and accessibility. While drive by traffic is great and creates exposure for the building, too much of it starts to impede the accessibility to the building. The right balance depends on the needs of the tenant.
Competition
Understand your competitors’ services, hours, convenience of location, and reputation in the community. Factors like these allow you to analyze the quality of competition and find ways you can either avoid legitimate competitors or out-position poorly positioned or poorly operated locations.
The best tool is Google Maps for two reasons: finding the locations and looking at their reviews. Google automatically keeps business information updated so you can get a street view or pictures of the inside. When it comes to reviews, many businesses are under performing. Competitors that have less than 3.5 star averages are ripe for disruption. Likewise, those with 4.5 stars or higher will be hard to compete with.
Physical Site Characteristics
Sites that are easily accessible are not only convenient for your customers, but also for your staff.
Be wary of:
-Obstructions to visibility from the roadways
-Parking limitations
-Obstructions to signage visibility
-Walkability
While there are certain things that can be controlled in some situations (parking and site design), most of these physical characteristics are permanent.
Careful diligence is needed to make sure your site meets your requirements, if feasible.
Market Strategy
Establish a five to ten year timeline for growth based on the market. A town of 50,000 might be able to support a second or third location, where as city like Dallas might be able to support 40 locations.
Trade Areas
Real estate changes every day. You may have a site that meets all the criteria in terms of demographics, drive by traffic, competition, anchor tenants, etc but nothing is available. A month later, something could be available. If you’re goal is to open two or three new locations, establish 6-8 trade areas to choose from.
If you need help finding the perfect location email us at podcast@leadersre.comor go to leadersre.com and fill out our form.
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transcript
Austin (00:31):
All right. So we are back with episode two of our lease process series, and we got Nate Palmer again with us today, we’re going to be talking specifically about site selection and how that relates to the whole lease process. So Nate, tell us a little bit about what you’ve been up to and how this is going to tie in.
Nate: 01:01):
Yeah, it’s funny we’re talking about this today. You know, I just came off, you know, our business trip, we kind of exist in a national brokerage and consulting capacity and it often requires us to travel and fly somewhere and verify competitors and look at trade areas and ultimately identify sites.
And because we haven’t been flying since March you know, we thought it’d be really noble to go on this 12 day, almost 7,000 mile road tour. So I grabbed the guy from the office and we jumped in the car at 12 hours, almost 7,000 miles later, we visited I think, nine distinctly different markets for clients to evaluate different opportunities in those areas. And yeah, man, it was crazy. But I think, you know, I think on the topic of site selection, I think, I think what’s really important is that like, this is a like this is a very challenging item. I mean, it’s really kind of the special part of our business, right? To be able to look at something that doesn’t exist and see it in a way where things are possible. And, you know, for, for a lot of our clients that are under 5,000 square feet and are primarily retail site driven in nature, you know, it’s, it’s just a dream to get into a good trade area, to have a presence of a good anchors.
And some of the things we’ve been talking about and then see a vacant pad that’s for some reason still not developed yet or an empty bank building or a taco bell that went out that we can just easily grab and, and try to work something through. And, unfortunately that only happens maybe 5% of the time. So you know, I think, I think one of the most important characteristics when it comes to site selection is really kind of the, the mental fortitude and the creativity it requires to really see something that’s not there and to really kind of come up with a path or a solution to kind of create that something that doesn’t exist. Yeah.
Austin (03:14):
So let’s talk a little bit about the inverse relationship between a drive by traffic and amount of people that are coming through and accessibility.
Nate:
Yeah. So we were just talking about this a minute ago, but you know, one of the common acronyms in site selection is vast visibility access site is traffic and, and obviously every user would love high scores in all these categories that the tricky part is you know, some of these work and inverse to each other, right. If I’ve got so much traffic, which is a good, which is people would argue a good thing, a lot of people driving by my building oftentimes that will impede or restrict the accessibility into the site, right? Because you can’t have a road with 40,000 cars a day in full access points and multiple parts of the site, right. Where people can just get on and off those roads without a lot of kind of carefully determined access patterns and traffic is something that’s really, really critical.
I think it’s something that impacts site selection in a way that a lot of people don’t give it a lot of credit for. Um, we were working recently on a project in Florida where you know, the part of the development required a traffic impact analysis. It was a new four acre development. And we had to see based on the users that were coming into that project, how that was going to impact and the number of new visits that those users were going to bring to that intersection and then be required to add additional infrastructure as part of some of our offsite improvements to really make it so that those customers and patrons that live in the nearby area could access, you know, these buildings that we were going to build and, and ultimately get to our users who are gonna open there.
So, yeah, what’s really tricky, I think is you know, some of the things that we look for, obviously you can’t have 10 out of 10 in every category, right. As much as we would all love that, you know, a high profile site, right. At a stoplight on an intersection with an anchor center behind you, obviously you’re going to have super visibility, super signage exposure, but your access is probably garbage. They’re gonna have to turn in around behind you somehow weave back into you and, and try to figure that out. Or maybe there’s an easy, depending on the flow of the traffic and how people are getting to that site, maybe from some directions there’s easy access, right in right out, but a complicated access path for that customer to get out of that physical pad and get back on the roadway, headed back to wherever they came from.
So, so yeah, I think it’s it’s really tough. And, and another component that really impact site selection is really understanding your client’s budget and what their objectives are. Right? Because to some extent, almost anything can be available, but it comes with a price. And so, you know, we’ve got a handful of clients that uh, occupy or our medical users, but don’t occupy high end retail space. They’re more traditional medical use. And, and so they’re limited on the amount of rent that they can pay. It’s a critical part of their business, success and profitability. So, you know, to some extent too, you also have to understand really with what you’re looking at and what you would hope to create or build or whatever that it’s ultimately going to be affordable for your client to be successful.
Austin (06:40):
Yeah. And that makes a lot of sense. So let’s go through, let’s just kind of talk about the order of operations with site selection. You know, what’s kinda like the timeline of how you’d go about tackling this subject for a client, you know, in the healthcare industry.
Nate:(06:56):
Yeah. So I would say it looks relatively similar for a lot of our clients in that, you know, you have some period, like we talked about where you’re kind of doing the market strategy, you’re trying to establish okay in five years and how in some period of time there’s some logical number of locations that make sense to open in this area, whatever that, you know, something as small as a second or third kind of type town with 50,000 people all the way to a Dallas that you might say, Hey, we could do 40 sites here over some period of time. So, so really once you have your market plan, then it really just comes down to the ability to kind of be able to target those selected areas and in somewhat of a regular business, you know, because real estate changes every day.
We’ve had it many times where we have a trade area we’re interested in, it scores well from a demographic standpoint, it’s low from a competitive standpoint, it’s got the anchors and the synergy we like, but I drove through there on June 1st and there was nothing available. A month later, somebody goes out of business, somebody drops their lease. And all of a sudden, you know, just in a few short weeks, you know, now a great building is available that was not available when I just looked there previously. So I think, I think that’s one of the critical pieces about, about site selection is, is really understanding that, Hey, just because something wasn’t available in this trade area today, doesn’t mean in a week, two weeks, three weeks from now that nothing’s going to be available. And so a lot of times what we try to work through with our clients is, Hey, if, if our goal is to open two or three new locations in some, maybe 12 month period, you know, ideally we want to have maybe six or eight areas that we’re looking in, right, so that we know, or we could confidently assume that, hey there’s going to be decent real estate options that meet our vast categories that are somewhat in our affordability matrix. Um, and we can, we can realistically acquire an open, you know, two or three locations in that time period. So, you know, it gets more challenging once you start to really build out a market and, you know, you’ve done 80% of your market penetration, then you’re, then again, you’re just really looking in areas that you’ve been looking in nothing’s been available. And so then we have to talk about, you know, how bad does our client want or need to be in that trade area and how much compromise and site integrity are we willing to look at, you know, to be able to make something work there? Um, so, you know, it’s, it’s you know, there’s not like a one size fits all kind of thing and it all kind of evolves based on the client need and in the process.
Austin (09:52):
Right, right. Yeah. So you know, cause we’re tying this all into the lease process and obviously, I mean, this is really step one, you know, when it comes down to sign your lease, like if you don’t have the right site selection, you don’t do this due diligence, then it doesn’t make any sense to go any further. So yeah, breaking down of those categories, hopefully that’s helpful for you guys is essentially realizing that some components can have pros and cons and they could have, you know, counteractive relationships with each other. And also realizing it’s a, it’s a fluctuating industry, like you talked about. I mean, there could be, it could make sense. It’s not a, it’s not like a one and done type thing, you know, it’s not like you go through you do your research.
Nate (10:38):
Totally. I mean, we, I mean, from our last trip that I was just on last week, we visited the same spot in Maryland for the third time. And for the first time something was available in that retail corridor, a very tight market and you know, which otherwise wasn’t hadn’t previously been available. Um, and I think another important thing to talk about, or at least briefly mention is you know, we hear all the time, you know, well, I need to go find sites. Okay. Yeah. Send me some site availability reported. And that’s where I think the commercial real estate space is very different from the residential real estate space. Like the, the amount of information that’s available online is nowhere near as completer thorough or accurate as home databases are. Right. So that’s where, you know, it’s always kind of our it’s always been our strategy that, you know, we can’t, it’s very difficult to do it accurately or properly without physically going into the market because there may be something that isn’t listed that, that is available, that we could dig and find the info on, or somebody didn’t know how to list it on one of the commercial databases.
So it’s just got a little for sale or available sign in the window and you just don’t know that without seeing it. Um, and you know, the other thing too, you know, that I’ll say is like, we have many clients in many trade areas that we’ve been looking for years that we’ve identified are watching, you know, the pizza hut buildings, the some of the Applebee’s or the Chili’s restaurants where, you know, you have these retailers who have historically been operating in these locations. They’re still open today, but we know nationally they’re struggling. And cause everybody can think of the example of blockbuster. And in some of these others, who’ve gone through just major bankruptcy or consolidation where, you know, one of the things we try to do in our market visits, if we really like a trade area and we like how buildings position is really make note of, Hey, you know, there’s an old, you know, red roof pizza hut building, which they’ve largely abandoned and gone to the small delivery, carry out location in a strip center.
And, you know, that’s a building we should watch to see if it would come available.
You remember when you and I drove through uh, those areas outside of Athens and Georgia, you know, we drove that stretch coming out of that Walmart. And there was an old pizza hut building and an old steak and shrimp building, right. So, you know, different trade areas and different specific users in those areas that I think people need to watch for the historically or, or just by trends. You don’t have transitioned to a different type of real estate that, you know, maybe it’s not something that’s available today, but at some point in the near future, you know, pizza hut is no longer going to continue to operate in that freestanding 3000 square foot building on an acre, you know, you’re likely going to transition to their new. Okay.
Austin (13:46):
And how do you help someone balance that? Like how would you help a client who has a business coming in and looking for it? They want to be quick to market, but they also really want a desirable location that might not be available right now.
Nate (14:01):
That’s a great question. It’s the heart of our business and really trying to balance that urgency with what’s physically available. Right. And, and that, that’s why I said, you know, if it’s possible as you’re looking to grow to identify more areas than you have to grow that way your likelihood of success of getting two or three locations you’re happy with is, is far greater. Right. But you’ll get to a point where you know, I remember years ago when we were working on some projects in Cincinnati per an urgent care operator it was kind of a coordinated strategy with health system and, and kind of optimizing urgent cares within the market and their proximity to the hospitals, ERs and their PCPs and some other medical providers. And so there were only five or six locations that we were ever going to do for them.
And so we got the initial few done again, looking at all six areas, not with any real significant bias to whichever ones we were going to start in. And we got a few done initially because there were no sites available. And then it just came down to the point where, Hey, you know, we have to do something in Anderson and this is the only stretch of retail there. And so either we wait or we take this, maybe the option that is available today. Right. And that’s where, you know, we just have to provide our clients with the options so they can make those decisions.
Austin (15:31):
Yeah. I think that’s good because really, you know, it doesn’t matter how many sites or how many locations you have. You could have a hundred, or you could have one, but just because you have one, it doesn’t mean that you have to go to one very specific three mile radius. You know, you could, if you can identify four or five of those or, or maybe, you know, three to five of those, then you’re opening up the amount of possibilities that you have. So you’re increasing the likelihood of getting a great, great location, because I, you know, we talked about this earlier, but I think that it’s easy to assume that you have to be in one specific area, you know, because it’s by something that you like, or you have a personal affiliation with it, but it’s easy to let our emotions, cloud logical decisions.
And so if you can break past that and identify multiple places where they meet the criteria that you’re looking for, you know, that, that hit these check off these three to five check marks that you’ve identified previously. Then that’s going to be key in snagging up those good locations because, the reason that they’re not available because they’re good locations. So in that sense, like you gotta be quick. And the more areas that you’ve identified as a possibility, then the higher, your chances of snagging up one of those areas when they come available.
Nate (16:42):
Yeah. A hundred percent agree, only nuance being, you know, most of our clients aren’t selling burritos. So sometimes there’s more factors from an operational standpoint that we have to respect, you know, based on referral relationships, providers who are going to work there and where they want to live and work and all that. So but yeah, you’re, you’re a hundred percent correct to the, to the best extent possible. If we can identify more areas than we need to open sites in, it always yields a better outcome. Um, but, but you get to a point where, you know, you still really want to be in a trade area and, and you just have to keep watching it and try to be creative. I mean, we’ve got, we have several examples of projects we’ve worked on and sometimes it’s relocating, right? Sometimes it’s a client of ours who either required or opened a site many years ago, never loved the real estate, but has a good practice, good doctor there.
And, and you know, sometimes it’s just about, Hey, just monitoring, coming up with a strategy of, okay, we’re just going to renew short term year to year, six months by six months, whatever period is appropriate and kind of constantly be monitoring for a better site opportunity. Um, and when the time comes and something is available, you know, to move on that, and depending on how creative you have to be, right, we’re doing one right now in Louisiana where our clients desperately wanted to move for a couple of years. It’s a very tight trade area, a couple of shopping centers with no availability. And you know, we’ve, we’ve kind of been hitting our heads on the wall. Not that, I mean, you know, some people have this fantasy that I’m going to go drive down the road and buildings that are vacant are just going to appear, right.
It’s not the case. Um, it’s very difficult. It’s very difficult. So so you know, now we’ve been talking with one of the shopping centers for a year to work on a plan, to do a carve out in a part of their parking lot that wasn’t as utilized as much. And we think, we think we’ve got something worked out there. Now we just have to fit it into the financial matrix to make sure that, you know, we can give them enough money for the pad that makes it worth their time and headache. And it also ends up being a viable business opportunity for our client. Um, so yeah, it’s, it’s never it’s rarely easy. I, shouldn’t never, it’s not the right word, but it’s rarely easy.
Austin (19:04):
Yeah. Well, there you have it folks.
Um, Nate, is there anything you’d want to add in closing?
Nate (19:07):
Yeah. Uh, probably, I mean, there’s so many, there’s so many strategies. oOne of the things I don’t, I don’t think we talked about is, you know, I think it’s, you know, at least in our interpretation you know, you really want to employ every strategy you can think of to identify possible options, right? From, from commercial databases to local broker market blasts, just letting everybody know that you’ve got an assignment or that you’re looking in a certain area, maybe you don’t have to get, you know, you have to be sometimes sensitive to the competitive nature of our client’s business and not wanting to announce to the whole world that, Hey, XYZ, urgent care is trying to go open a new location in this market. Right. We’re not, you know, we have to be a little sensitive to that, but, but something to let brokers or the brokerage community or landlord community know that you have a need in an area so that they can be thinking about options that they could present to you physically driving there.
And, you know, and there’s some strategies when you are driving and looking around that, that you can also think about, right? Like a lot of times if I’m going to go to a market, I’m not going to hit every, you know, if we’ve identified 10 target areas in a market, I can’t be in every area during the time that it’s busy. Right. So we’ve got to look at strategies or understand, Hey, it’s nine o’clock in the morning on a weekday and I’m in the shopping center. There’s a lot of other anchor and synergistic users, but because of the time of day, the day of the week, there’s nobody in the center. Right. So looking at the parking lot, looking at oil stains, seeing how full, the lot normally gets so that we can make some assumptions around, you know, the viability of the center beyond kind of what we’re physically looking at when we’re there at a weird time.
So there’s just a lot of that kind of stuff that you’ll learn and that you’ll get better at as you kind of go to her and look at, look at some of these locations.
Austin:
Yeah, yeah, absolutely. Well, I think that’s a lot of content to process. So like always a hope that his information is, is helpful and practical that you can go out and implement it day one of listening to it. So stick around the next topics that we’re going to be going over are going to be components of an LOI. So we’ll break those down for you guys. And then we’re gonna talk about the core economic components in relationship to an LOI. And then lastly, we’ll just be breaking down the differences between simple or complicated LOIs. And so Nate, thanks for enlightening us with the knowledge and see you guys next time.
You can also download the Top 10 Site Selection Factors or view our entire podcast library.
If you need help finding the perfect location for your practice or your ready to invest in commercial real estate, email us at podcast@leadersre.com.