The Economic Impact Study for a Big Box Retailer

By Rabianski, Joseph S. | Real Estate Issues, Winter 2005 | Go to article overview

The Economic Impact Study for a Big Box Retailer


Rabianski, Joseph S., Real Estate Issues


INTRODUCTION

THE DIRECT ECONOMIC IMPACT OF A BIG BOX RETAIL FACILITY occurs in two parts--the construction phase and the operation phase of the subject property. The construction phase provides a short-term effect while the operation phase generates a long-term effect on the local economy. The direct economic impact consists of the:

* Employment involved in the construction and the operation phases of the facility.

* Wages paid to on-site employees during both the construction and the operation phases of the facility.

* Retail purchases from establishments in the local economy made in association with the construction and the operation of the facility.

THE RESEARCH DESIGN

The research design requires primary data gathered for the construction and operation phases of the facility. Construction data for the analysis comes from both the general contractor and the Marshall & Swift Cost Manual. Data for the operation of the facility comes from the operations manager of the corporate chain of the retail establishments under the assumption of normal business operational circumstances. These costs of operation are evaluated for reasonableness by considering the operational and sales data identified in Dollars and Cents of Shopping Centers published by the Urban Land Institute and the data from the International Council of Shopping Centers. To the extent possible, all information from the client needs to be independently supported and verified.

The second phase of the analysis is the allocation of the array of expenditures by the Big Box facility within Alpha County. These expenditures are:

* wages and salaries during the construction phase;

* construction material purchases;

* wages and salaries during the operations phase;

* services required during operation of the facility; and

* retail purchases during the operations phase.

The third part of the research design is the estimation and the application of the relevant economic impact multiplier for the Alpha County local economy. This multiplier translates the direct effect of the expenditures into the total effect of the expenditures by estimating the indirect and induced effects of these direct expenditures. The wages generated by the facility that remain in the local economy provide for increased consumer spending that in turn generates a need for additional workers to service the needs of the facility. This is the indirect effect. The induced effect is the increase in employment associated with the general spending for consumer goods and services by the workers associated with the direct and indirect effects and the subsequent increase in employment caused by this spending. This is the iterative process that underlies all multipliers used by economists since the outset of Keynesian economics.

DIRECT ECONOMIC IMPACT DURING CONSTRUCTION

The information that describes the construction phase of the analysis consists of the data for direct property-related expenditures. To determine the direct impact on a local economy such as Alpha County, the portion of these direct construction-related expenditures made on the property need to be allocated between the portion made for the property that remain in the county and the portion made that are paid to personnel and establishments outside the local economy.

The direct construction expenditures fall into the categories presented in Exhibit 1. The best estimates of the allocation of those expenditures also appear in Exhibit 1. The gross building size of approximately 150,000 square feet is estimated at a total construction cost of $8.25 million. This translates into a square foot construction cost of $55. These figures were provided by the Big Box Company. An independent verification of the square foot value was performed using data from the Marshall and Swift Cost Service. The cost per square foot estimate for the major structure from this source is $56. …

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