"The Bigger Picture"
The following text is Gil Castle's final draft of
the real estate column appearing in Business
Geographics, February 1997
Copyright © 1996
GIS World, Inc.
The proverbial "tip of the iceberg" accounts for only about 10
percent of the iceberg's total mass. Most of my columns over the last
three years have focused on the most visible 10 percent of business
geographics in real estate. Since this is the annual issue of
Business Geographics devoted to real estate, now is an appropriate
time to dive below the surface and look at the underlying formations
affecting business geographics in the real estate industry. I see
four salient trends.
Retail site selection is the private sector application of
business geographics technology that has caught on the most quickly.
This is not surprising, given that site selectors were already
relying heavily on (typically) city maps showing population, income,
retail sales, etc., by census tract. Business geographics technology
enhanced the speed, choice of variables, analytic tools, and
presentation quality of an existing, well-established procedures. The
benefits of adopting the new technologyessentially, of
automating a manual processwere obvious.
Less obvious are the benefits of applying the technology to a
broad spectrum of other types of site selection. Retail site
selection is far from being the only type. Indeed, as Mike Robbins*
has frequently pointed out, virtually all real estate transactions
come down to one of two possibilities:
- A site in search of a land usesuch as a land owner looking to sell his/her property to a developer of residential subdivisions; or
- A land use in search of a sitesuch as a corporation looking for a warehouse site, a government agency looking for new office space, a household looking for a new home.)
Focusing on the second possibility, how many entities are in
search of a site? With 15 million businesses and 200 million
households, the United States has a huge number of players in the
real estate industry. Moreover, these are not one-time players; for
example, the average household relocates every five years. Site
selection, again, is a far bigger business geographics opportunity
than most people realize.
How can we begin to get a handle on the opportunity? Broadly
speaking, I see five market segments:
- Users. These are the individuals, families, and organizations that actually choose and occupy a site, above and beyond retailers. They include, but certainly are not limited to:
- Households needing a house, condo, apartment, or other residence;
- Companies needing space for offices, manufacturing, warehousing,
and product distribution;
- Government agencies needing space for offices and for such
special facilities as schools, police and fire stations, parks and
other forms of recreation, and protected ecosystems;
- Health care organizations needing locations for hospitals,
outpatient clinics, and other medical facilities;
- Tourists needing hotel accommodations, restaurants, souvenir
shops, parking lots, and on and on.
- Capital Sources. Most property acquisitions involve a mortgage or other form of debt. Debt underwriters obviously want to know that the potential borrowers' chosen sites make sound economic sense. The predominant financing sources are banks, but also include:
- Wall Street, e.g., mortgage Real Estate Investment Trusts
- Pension funds and other institutional investors;
- Foreign investors, mainly from Canada, Europe, and Japan; and
- High net-wealth individuals.
- Service Providers. No interest in a property is conveyed without the participation of brokers, appraisers, insurers, environmental hazard engineers, and other real estate service providers. Sometimes these third parties engage in site selection analyses as a normal part of their jobs, e.g., brokers and appraisers who conduct such analyses to accurately determine the value of properties. Other times the service providers conduct site selection activities on behalf of a user or capital source, e.g., when Circuit City subcontracts out site selection analyses to Staubach Retail Services (Dallas, TX).
- Software and Data Vendors. During the two years or so a number of enhanced and new business geographics products have arisen, aimed exclusively at the site selection market: Tactician, AnySite, SpartaSite, Scan/US, BusinessMap, etc. The principal vendors of socioeconomic data basese.g., Equifax, CACI, Urban Decision Systems, Claritas, Market Statisticsare of course very aware of and responsive to the needs of site selectors. New software and data vendors are entering the market all the time.
- Miscellaneous Others. Publishers, government regulators, economic development agencies, chambers of commerce, utilities, transportation engineers, and academicians are among other groups that have an interest in site selection procedures and outcomes.
These groups use business geographics in site selection in
different ways, though some redundancies exist. For example,
families, brokers, and banks all need an appraisal, preferably GIS
based, when a new home is being purchased. Retailers, bankers,
brokers and appraisers all need a trade area analysis. Bankers, Wall
Street investors, insurance companies, and engineers all need an
environmental hazard due diligence from ERIIS (Herndon, VA), EDR
(Southport, CT) or other supplier.
Future columns will focus on trends in site selection among some
of the above groups, probably beginning with the rapidly evolving and
expanding uses of business geographics technology by Multiple Listing
Services (MLSs) in helping households to find and purchase homes.
* Former professor of appraisal at the University of Wisconsin at
Madison and Denver University, currently the CEO of GRAASroots Real
Estate Counseling in Englewood, CO, and an officer of the Business