Commercial Real Estate Catchment Area Analysis for Retail Sites
With modern technology like geographic information systems (GIS) analytics tools, retailers, and commercial real estate (CRE) professionals have access to a wealth of essential location-based data and insights that make the process of studying a retail catchment area a whole lot easier!
We’ve put together this guide to walk you through the process of defining your catchment area using GIS, in order to find the best location for your retail business.
What is a Catchment Area?
A catchment area in the context of commercial real estate is the defined geographic area around a piece of real estate.
It indicates the area from where the business, service or organization attracts customers. It can also be referred to as the ‘trade area’.
What is a Catchment Area Analysis?
Catchment regions are defined relative to a specific retail location. They can be used to analyze foot traffic trends, for instance.
Determining the market potential, reach, and effect of a retail site all depend on an understanding of the catchment region.
This is where analysis is useful.
Certain factors play an important role in a catchment area analysis, such as:
- Geographic boundaries
- Distance and travel time
- Mobility patterns
- Population demographics within the catchment area
In essence, catchment area analysis helps retailers to customize services to meet the needs of the local population, develop strategic marketing plans, and maximize resources. You can also use it to study consumer behavior and retail competitors in the area.
Methods for Calculating Catchment Areas in CRE
There are three different techniques used to determine a trade or catchment area.
1. Distance-Based Catchment Areas
Distance-based catchment regions consider the specific distance that customers travel to a retail location.
Defining a distance-based trade area helps you to identify customers based on proximity.
Distance is measured in concentric circles around a focal point. The radius of each circle specifies the distance travelled. These are measured in one- or five-mile increments. In more densely populated areas where customers walk, a one-mile radius will yield plenty of insight.
In more spread-out areas where people often travel by vehicle, you may need to measure five or 10 miles out. Or even more.
2. Travel or Drive Time-Based Catchment Areas
Travel or drive time-based catchment regions show how long it takes customers to get to and from a retail location using their chosen method of travel.
A travel time catchment area can be defined according to the type of transportation such as by foot, car, or bus.
It can also be measured by time of day. While the radius rings method considers distance ‘as the crow flies’ from a retail location, drive time catchment areas usually have jagged, undefined edges because they consider actual travel routes as well as traffic congestion.
3. True Trade Catchment Areas
A true trade catchment area uses mobile location data to measure real-time movement of customers around the area.
It looks more like a heatmap showing areas of high visitation as darker than other areas.
With this method, you can create various data visualizations of trade areas based on customer variables such as:
- Demographics
- Other stores visited
- Dwell times
Creating multiple or interactive catchment maps can give you a clearer picture of the catchment area for your business.
Factors to Consider in Catchment Area Analysis
To truly understand the market dynamics, you should consider a few important aspects when doing a catchment area analysis.
A key indicator of the demand and prospective client base in a certain geographic area is population density.
Analyzing nearby competitors is also important for revealing the retail market saturation and environment.
Some questions to consider:
- Is it easier or more difficult to attract target clients when there’s another brand in the area?
- Which other brands in the area are consumers choosing to come back to?
- What does this say about local partnerships or gaps in the local market?
Studying consumer behavior and demographics can offer insights into the preferences, purchasing habits, and socio-economic profile of your target market. With this information at hand, you can customize your marketing plans to work within your specific catchment region.
And don’t forget about foot traffic! Foot traffic is the most important dimension of catchment area analysis because it gives you an idea of a location’s trade potential.
Catchment Area Analysis for Retail Site Selection
Choosing a store location is one of the most important factors that influences your success and profitability in retail. Examining catchment areas can be particularly useful when looking for a new site for a retail store or franchise.
Various ways you might study your catchment area to determine the optimum location could include:
- Studying existing foot traffic, car traffic, and repeat store visits of shops similar to yours to understand the potential flow of customers in the area.
- Analyzing the demographics of people who live in the catchment area of a particular site, to assess whether they are your ideal customers.
- Investigating existing competition in the area to identify the market gaps. Not only does this help you define your ideal location, but it might give you ideas for how you can differentiate yourself in the local market.
Tools and Data Sources for Catchment Area Analysis
To conduct a thorough catchment area analysis, it is important to use a variety of tools and data sources. Let’s take a quick look.
GIS is a key tool you can use in the analysis process. GIS allows you to map and visualize geographic data within your catchment area.
Point of Interest (POI) data provides you with critical information on the location and number of businesses, amenities, and services in your area. You can use POI data to gain insight into consumer preferences and market gaps.
Spatial bank transaction data can help you understand consumer spending patterns and economic activity within your area. This data can give valuable insights into consumer behavior and financial trends.
How to Perform a Catchment Area Analysis Using GIS
Catchment area analysis using a GIS platform involves several steps, including:
- Identifying a specific goal
- Compiling data
- Uploading data to a GIS mapping software
- Conducting analysis
- Sharing results
- Making decisions
If you’re using AlphaMap’s trade area analysis tool, follow these 5 easy steps:
1. Select your property location on the map.
2. Scroll down the list on the left-hand side of the screen.
3. Click ‘Radius Rings Trade Area’ or ‘Drive Time Trade Area’ or ‘True Trade Area’.
4. Scroll down to view demographic and benchmarking data.
5. Analyze the results.
Final Thoughts on Catchment Area Analysis for Retail Businesses
There are many benefits of using catchment area analysis for retail businesses. It’s a powerful technique that can transform the way your business operates. By harnessing modern GIS analytics tools, today's businesses can define their trade areas with precision, replacing guesswork with actionable insights.
Not only is catchment area analysis useful for finding suitable sites for a new retail store or branch location, but it also provides a deeper understanding of consumer behavior and preferences that helps to optimize your retail strategy.
If you understand these factors, you can tailor your offerings and marketing strategies to better resonate with the local customer base. Happy customers will return to your store over and over again!
To get started, why not try out AlphaMap’s trade area analysis tools? Get in touch with us for a demo, and we’ll have you up and running in no time.
