The definition of a market area sets the context and tone of the entire market study. While a somewhat subjective judgment, a market area's size and density has a profound impact on an analysis in terms of understanding demographic trends, demand estimates and the competitive environment.
A myriad of factors should be considered in order to ensure the most accurate market area possible. A detailed narration should advise the reader how a market area was determined. Documentation of boundaries such as Census data, commuting patterns, neighborhood boundaries, jurisdictional divisions, school districts, social service area boundaries, and anecdotal information obtained during a field visit should be included in this narration. The narrative should explicitly describe what relevant factors led to the market area definition.
 |
Population and Household Counts: The number of households in a market area is directly proportionate to its geographic size within an individual market. Total householders residing in a market area can greatly influence demand calculations.
|
 |
Location of Competitive Properties: A primary consideration in defining a market area is identifying those locations that offer alternative opportunities to a potential renter for a subject site. The managers of existing Comparable Properties near the site are excellent sources in determining those competitive locations.
Accessibility: Available transportation linkages including both traffic arteries and mass transit options can influence the size of the market. Mass transit can have a significant impact on projects addressing very low income households for which transportation options may be limited. Natural Boundaries: Natural boundaries including rivers and mountains can restrict the movership within a market due to lack of accessibility. Housing Product Characteristics: The availability of a unique structure type such as a high rise may alter the typical draw of a potential project. Market Perceptions: Whether grounded in reality or not, market perceptions can be a significant determinant of market area boundaries. Social stigmas often exist within sub-markets, with residents from one side of a submarket may not move to a close by neighborhood, regardless of housing opportunities. The construction of a new, attractive rental community may not necessarily relieve this perception. Commuting Patterns: The time spent commuting and employment destination could often reveal distinct patterns. High percentages of workers with long commutes or working in neighboring counties are often indicators of a lack of affordable housing options near employment centers. Target Market: Proposed developments targeting a special needs population such as seniors, generally draw from a larger geographic region. Given the smaller pool of qualified householders, the location and quantity of comparable stock is of additional importance. An acceptable market area for a family oriented rental community will often be too conservative for a rental community targeting senior rental householders. Jurisdictional Boundaries: Differences in the quality and services provided by school districts, municipalities, or counties often influence consumer location choices. Local Agency Service Boundaries: The geographic areas covered by local agencies, such as housing authorities, senior citizen centers, community-based organizations, or churches can be a strong indicator of market area boundaries, especially when the project has a community-based sponsor or cosponsor. Non-geographic Factors, such as employees who might be expected to reside in a development as a result of planned or existing job opportunities and special needs households who are served by a multi-jurisdictional agency that covers communities that are clearly distinct market areas. |
 |
Radii Market Area: The use of concentric circles commonly referred to as a "ring analysis" to determine a market area is an arbitrary and antiquated technique. While useful in developing preliminary demand estimates, adequate field work generally yields sufficient data and insight, eliminating the need to draw a circle around the site. In some cases, an accurate market area can resemble a circle; however the market analyst should present data and narration explaining the use of this type of market area.
County-Wide Market Areas: A common practice, especially in rural areas, is to use an entire county as the market area. The site's location relative to the county boundaries should be heavily considered before the county is chosen as the market area. Often times, similar housing communities in neighboring cities or towns are closer in both proximity and demographic/housing composition than the far side of a county. The location of a proposed community within a particular county does not ensure that all county residents will consider it a viable housing option; likewise residents of neighboring counties will not necessarily ignore it just because it is not in their home county. Another path of least resistance example is using city limits, which may exclude nearby communities or unincorporated areas. Gerrymandered Market Areas: Irregular shaped markets may be a symptom of drawing a market area to support a specific position. A market area should be somewhat contiguous, following transportation networks, political and natural boundaries. An unusual appendage to a market should be examined and justified by the analyst. |
