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Retail, Location and Cities

Retail, Location and Cities. Lecture for Real Estate Class William N. Goetzmann. Overview. Location analysis Retail application What are cities? Models on cities Economics of place. Location Analysis. Where to place a market How to estimate sales How to factor in competition.

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Retail, Location and Cities

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  1. Retail, Location and Cities Lecture for Real Estate Class William N. Goetzmann

  2. Overview • Location analysis • Retail application • What are cities? • Models on cities • Economics of place

  3. Location Analysis • Where to place a market • How to estimate sales • How to factor in competition

  4. Retail Real Estate • Variety • Specialty • Limited Line • Department • Mass Merchandise • Discount • Warehouse

  5. Types of Shopping Centers

  6. Mall Shape

  7. Rationale • Anchors for Draw • Shops for Impulse • Finance: • Anchors own or lease cheaply • Specialty shops pay percentage rents

  8. Gravity Models • William Reilly (1929) • "Retail Score Inversely Proportional to Distance" • Geographical Settlement Patterns • Applications: • How many customers will come to the store? • Where should we locate our store? • What kind of store will work?

  9. Example • Mall location analysis in Connecticut • Travel Times • Population Centers • Mall Size

  10. Travel Distance in Miles (or Minutes)

  11. A Gravity Score e.g. 2,500=10,000/4

  12. Market Share by Mall E.G. .34= 2,500/(2,500+833.33+4,000

  13. Estimated Sales of Each Mall Market share times city demand e.g. 17,045.45=.34x50,000

  14. Issues • Linear model • Mix of retail • Consumer types • Inter-position on locations • Sayes’ law

  15. Location • Cities from first principles • Monocentric city model • William Alonso (1964) Location and Land Use • Richard Muth (1969) Cities and Housing • Transportation costs • Employment and shopping take place at one point • Demand for housing/budget constraint • Utility for leisure time

  16. Results • Housing prices (and rents) are a decreasing function of distance from CBD. • Shifts in transportation costs and travel times can be analyzed. • Calculus for understanding new structure of cities. • E.g. Rae (2004)

  17. Another Approach • What are cities? • Employment • Shopping • Social centers • Private property • Public amenities • What makes them grow?

  18. From: Diego Puga http://dpuga.economics.utoronto.ca/

  19. Human Capital • Acquisition of labor is easier. • Knowledge spillover leads to positive externalities. • Diversification (Jacobs/Glaeser) • Reduces labor risk • Competition • Leads to innovation • Specialization (Marshall/Arrow/Romer) • Develops particular technology

  20. Goetzmann, Massa, Simonov • Specialization: the main industry in local employment / share of this same industry in national employment. • Competition: number of firms per employee in a district relative to the number of firms per employee in Sweden. • Diversity is the share of the next top (after the main one) five industries in municipal employment

  21. Savings, Investment & Finance • Urban housing less risky • Diversified industry base => smooth demand • Personal Portfolios • Knowledge spillover & speculation • Time and attention

  22. Swedish Household Data

  23. Wealth Variables

  24. Degree of Isolation and Equity Portfolio diversification

  25. Local Professional Specialization and Equity Portfolio Diversification

  26. Under-Diversification • Linked to knowledge creation and spill-over in the urban environment. • Spillover that characterizes city agglomeration on the one hand reduces the availability of time to collect and analyze financial information • Increases the relative information that an investor has with respect to stocks professionally or geographically closer to him.

  27. Cities • Provide investment opportunities • Require less risk hedging • Result in capital growth and more spillover

  28. Creating Cities • Costa Mesa, CA • World Financial Center • Canary Wharf, London • Dubai, UAE

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