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Understanding Your Market Study: Part 2

Defining the Market Area

The first segment of this multi-part blog series established that market studies require particular attention as a critical component of the seniors housing development planning process. In this second segment, we’ll touch upon common methodologies, and uncover fine points that can increase the accuracy of a market study.

Your odds of hitting the target increase dramatically when you aim for it

Is your investment strategy to be first in a market, split sales with competitors, or take market share? Has a development site been identified or is a proposed site being considered? Does a project’s marketing strategy need to be fine-tuned to meet pro forma projections? Or are you hunting for new sales opportunities for an expansion?

Regardless of the rationale, the goal of a market study is to determine the type and size of a seniors housing property that a specific market can realistically support. An accurately defined market area is a crucial first step that can often make or break the success of a project or investment.

As with other commercial real estate property types, choosing the location for an investment frequently starts by analyzing regions of the country and comparing metropolitan areas to determine which location has the potential to support potential development. At this point, it is important to clarify several characteristics of a market in a broad economic sense so that the study can be aligned with market trends.

  1. Determine Relevant Market Areas

From a 30,000-foot view, the metro area being evaluated may appear impenetrable. But a closer look from ground level may reveal pockets of opportunity that otherwise would have been overlooked. The focus then narrows to the county or municipality level for further evaluation.

Here the analyst establishes the marketplace from which most age- and income-qualified seniors will originate. A market area may be designated by simply drawing a radius around a point; often a five-mile ring is used. However, defining a market with greater selectivity may improve the precision of a market study.

Built and natural boundaries, such as highways, bridges or rivers, and the location of major services such as hospitals and shopping centers influence how and where people travel, and should be considered. Depending on an area’s population density–taking into account the type of property under study–the market area in urban settings may be well-defined by small geographical units such as Zip Codes, Census Tracts or Block Groups; but in rural areas, it may encompass several square miles.

  1. Size the market

With people living longer and healthier lives, the average age in senior living communities has been increasing over the last decade, from the mid–to-high 70s to the low- to mid- 80s. Depending on the type of seniors housing property, the combination of unit types within the property, and whether it is new construction or an expansion, a few fundamental questions must be answered to begin to estimate the size of the target market. These questions include: what are the minimum income and asset qualifications of households that can afford to live in the new development or expansion; what is the minimum age requirement; and about how far would future residents be willing to move from their current homes.

Undoubtedly, the graying of the nation’s population has created the need for more age-restricted senior apartments, independent and assisted living communities, nursing facilities, hospitals and medical offices. But while it is tempting to think that populations are always increasing, especially when we’ve been hearing about the ever-coming “Silver Tsunami” of the senior population for some time, individual neighborhoods may be losing seniors as people age out of communities or move elsewhere to be closer to adult children. For reasons such as these, it is important to conduct cohort analyses not only for current senior households within the defined area, but also those of the adult child influencer (age 45-64), and take into account demographic forecasts to ensure the market has enough qualified seniors to fill and keep the property full over time.

  1. Contextualize the setting

After sizing the market, there are many other factors that can be considered to hone the accuracy of the local market area definition including:

  • Barriers to entry (regulatory, physical, psychological)
  • Compatibility of surrounding land use (if a site has been determined)
  • Residential home sales prices and volume trends
  • Consumer confidence and purchasing power
  • Employment rates and key employers
  • Financial outlook of major local industries
  • Convenience of public transportation, including airports and local bus and rail service
  • Availability, acceptance and use of public senior services
  • Proximity to areas where adult children live or work
  • Traffic congestion, migration patterns and easy access to highways
  • Proximity to amenities important to seniors and their adult children such as grocery stores, restaurants, places of worship and entertainment opportunities
  • Climate and weather
  • Political boundaries, neighborhood boundaries and community identity

It cannot be overemphasized: the geographic area truly is the foundation of the market study. Once the market area has been delineated as precisely as possible, research of market trends should begin. This includes identifying competitive properties, conducting interviews with local stakeholders, and identifying any comparable projects in the development pipeline.

The following post in this Understanding Your Market Study series will discuss how to begin the next phase of the market analysis from your desktop, including tips for legally and ethically collecting information from publically-available sources.

About the Author

Lana Peck

Senior Principal Lana Peck has two decades of market research experience exclusively in the seniors housing industry. Prior to joining NIC, Lana worked for Brooks Adams Research in Richmond, Virginia as director of research, where in addition to serving as research consultant on the joint LeadingAge/Mather LifeWays CCRC Namestorm Taskforce to identify a new name that positions CCRCs in a more relevant way for future consumers, Life Plan Community; she was responsible for senior consumer market research, market feasibility studies, and industry research for national senior living trade organizations. Lana’s prior experience also includes more than a decade with Life Care Services LLC, in Des Moines, Iowa, where she served as senior market research analyst, and Gartner, Inc., a worldwide-leading information technology research and advisory company, where she managed global business-to-business market research projects. She holds a Master of Science in Management in Business Management and a Master of Family and Consumer Sciences in Gerontology.