Ever wondered why some commercial real estate (CRE) ventures succeed and others don’t? The secret often lies in meticulous early-stage planning, a cornerstone of which is conducting a gap analysis.
What is the process of a gap analysis, and why is it so critical for CRE success? We’ll explore those nuances in this guide, and you’ll learn how to use gap analysis to enhance your decision making.
What is a Gap Analysis?
A ‘gap analysis’ is a process that helps businesses identify gaps between the current situation and where they’d like to be.
It’s a situational analysis that uncovers potential issues that need rectifying, while giving pointers for strategically bridging any gaps that arise.
Gap analyses can vary from analyzing real-world scenarios to hypothetical situations. They can also be future focused with a view to strategic planning or look at existing operational performance.
A ‘market gap analysis’ is a research-backed analysis specific to retail. The process of a gap analysis in retail identifies sales opportunities where consumer needs exceed the available offerings. In other words, it identifies gaps or voids in the market (hence the name).
Sometimes called a ‘void analysis’, a market gap analysis is particularly useful in commercial real estate, as it helps retailers identify potential profitable locations, analyze competitors, and can also be used in a growth strategy for expanding brands and franchises.
How Market Gap Analysis is Used in Commercial Real Estate
You might be wondering how a market gap analysis is used by CRE professionals, and more importantly, why. Here are a few situations where a gap analysis gives powerful insights:
Assessing Business Idea Viability
Perhaps you want to start a retail store. Retail is a highly competitive sector so you must validate your market first. As a useful addition to your market research about your target audience, competitors, and product or service, you will likely run a few market void analyses in different areas to identify if and where there is a demand for your offering.
Essentially, a gap analysis helps you to identify if there is a genuine need for your retail business idea and gives clues as to the most profitable locations.
Identifying Ideal Locations for Retail Stores, and Other Commercial Buildings
Once you’ve validated a retail business idea, choosing the right location will have one of the biggest impacts on your profitability.
Running a gap analysis will help you to avoid areas where similar types of stores already exist. You’ll avoid saturating the market.
On the other hand, you may discover certain types of retail stores that pair well with your business.
Perhaps you are opening a burger joint, and you find a location next to an ice cream shop. Maybe you’re opening a pharmacy, so you pick a location next to a post office.
You can use a gap analysis to find locations where complementary retail businesses already exist, to increase your chances of success.
A market void analysis can be useful for finding the location for other kinds of commercial ventures, too. An office block that is used as a shared office space, for example, would need to validate the need for such an offering in the chosen area.
Enhancing Strategic Growth for Retail Chains and Franchises
Existing retail chains can use a market gap analysis to understand which stores are the most visited in which locations.
You can gain clues from this analysis as to why this specific store is performing well so that you can replicate the process elsewhere.
For example, say you own a chain of three pharmacies, and you’re wanting to expand.
One of your pharmacy branches is located in a busy urban high street next to a post office and grocery store. This branch outperforms the other two which are in small shopping malls. You find a location for the fourth store in a similar type of location to the successful store.
Alternatively, perhaps you identify a competing brand to yours which is in a mall near to a bank and large supermarket. You notice this location has high levels of foot traffic. You attempt to find a similar kind of location in another area.
Finding Ideal Tenants for Shopping Malls
Shopping mall owners know that having the right mix of retail tenants is crucial to bringing in a consistent stream of foot traffic. How do you strategically plan your tenant mix? And, how do you find the desired tenant once you have a plan in place? The answer is to run a market gap analysis.
You can study the combinations of retail tenants in existing malls with high levels of foot traffic, to gain clues as to the types of tenants which pair well together.
You might even use this process to identify the specific brand that you want in your mall.
An online Geographic Information Systems (GIS) tool like AlphaMap’s TenantFinder™ uses the process of a gap analysis to identify co-tenants whose demographics are a good match. Within minutes you’re able to populate a list of possible high-quality tenants, including their contact details.
Benefits of Performing a Gap Analysis in Commercial Real Estate
In commercial real estate, a gap analysis provides several benefits for those willing to put in the time and effort. These include:
- Relying on actual data rather than intuition
- Enhanced decision-making capabilities
- Strategic planning
- Risk mitigation
- Greater likelihood of success
- Competitive advantage
- Technological efficiency
Process of a Gap Analysis: Step-by-Step
1. Set Objectives
Define the primary objective of your gap analysis. Are you looking for the perfect tenant, the most profitable location for your retail store, or perhaps new markets for expanding your franchise? Make sure your objectives are realistic.
2. Define the Current State
Gather as much existing information and data as possible on property values, tenant demographics, foot traffic, competitor location, or whatever else you need to know. Use technology to help you with this. A GIS analytics platform is an ideal place to do your research. Here you can easily access property location insights, demographic data, and more.
Use the collected information to create a snapshot of the current situation. This is your ‘current state’ or starting point. Here’s where you can also identify some of the challenges you are experiencing in the current state.
3. Define the Desired State
Here’s where you visualize what success might look like in not only qualitative but also numerical terms. For example, you want your retail mall to have a 90% occupancy rate. Or perhaps you want to expand into X number of new markets during the next financial year. Maybe you’re looking for a location that has x amount of foot traffic to make your idea viable.
Make sure you define an achievable and actionable picture of success. It’s no good defining a desired state that is impossible to attain.
4. Identify the Gap
Contrast the current state with the desired state.
There are various methods you can use to measure the discrepancies:
Key Performance Indicators (KPIs) such as occupancy rates, return on investment (ROI), and foot traffic data serve as valuable benchmarks for identifying these gaps. For instance, a difference between a desired 90% occupancy rate and a current 70% rate clearly outlines a 20% 'gap' that needs addressing.
Qualitative factors such as tenant satisfaction and brand reputation could also inform reasons for the gaps.
A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) tailored to CRE could be a useful tool for figuring out where discrepancies exist across different aspects of the business.
Leverage technology such as GIS location insights platforms, predictive analytics, and machine learning to analyze the data and gain meaningful insights.
5. Understand the Causes of the Gap
It’s important to diagnose the underlying factors that contribute to the gap. You could consider the following:
Exploring internal factors such as issues relating to a company’s management, for example.
Studying external factors such as market fluctuations.
Analyzing financial data such as revenue, expenses, and other key financial metrics that could be contributing to the gap.
Reviewing competitor’s marketing strategies, and market trends and demands.
Addressing operational issues related to possible logistical problems, ineffective marketing, or poor staff performance.
6. Develop Strategies to Bridge the Gap
Now that you understand where you are, where you want to be, and why a void exists, it’s time to brainstorm a variety of solutions to bridge it. You’ll likely run a cost-benefit analysis to assess the costs involved in implementing each potential strategy.
This part of the process might require input from the various stakeholders such as property owners, investors, leasing agents, and possibly even tenants.
Very importantly, a timeline with clear milestones needs to be established, to ensure the strategies are implemented effectively. Progress must be tracked and KPIs measured to ensure eventual success.
A contingency plan is always a good idea too. Since the market can change quickly in commercial real estate, having ‘backup’ strategies is beneficial. These might include having an alternative property location in mind, or a second exit strategy (such as selling instead of letting) if things don’t go according to the original plan.
7. Monitor and Review
In truth, a gap analysis is never really ‘finished’. Strategies require ongoing evaluation to ensure that the desired results are achieved. Be agile and ready to adjust to the ever-changing CRE market.
How CRE Technology Can Help with the Process of a Gap Analysis
CRE-specific GIS analytics platforms are a great place to start if you want to do a data-backed gap analysis quickly and easily. Gone are the days of having to manually gather demographic and brand data, and then spend hours analyzing it.
Today’s GIS technology allows CRE professionals to compare and analyze vast amounts of complex property and location data simultaneously. This makes a market void analysis using a GIS tool not only quicker but also more accurate than ever before.
Final Thoughts on the Power of a Gap Analysis
While it might seem onerous, the upfront effort in conducting a comprehensive gap analysis pays off dividends in the long run. Given the high stakes involved in CRE, overlooking the benefits of advanced planning is not an option.
Ultimately, the key to a successful CRE venture lies in meticulous early-stage planning.
A gap analysis isn't just a one-time task but a continuous tool for making data-driven decisions and mitigating risks. As such it should form a key part of every CRE professional’s strategic arsenal.
For today’s professionals, the process of a gap analysis is certainly not as time-consuming as it used to be, thanks to modern technology. Some GIS location insights platforms have in-built void analysis features that provide access to advanced analytical data and trends within seconds.
So why wait? Take the first step in boosting your CRE strategy with an in-depth gap analysis.