Academic journal article The Journal of Real Estate Research

Store Location in Shopping Centers: Theory and Estimates

Academic journal article The Journal of Real Estate Research

Store Location in Shopping Centers: Theory and Estimates

Article excerpt

Abstract

This paper develops a formal theory of store location within shopping centers based on bid rent theory. The bid rent model is fully specified and solved with the objective function of profit maximization in the presence of comparative, multipurpose and impulse shopping behavior. Several hypotheses result about the optimal relationships between store types, sizes, rents, sales, and distances from the mall center. The hypotheses are tested and confirmed using data from a sample of 689 leases in eight regional and super-regional shopping centers, suggesting that a bid rent explanation is consistent with observed location patterns in malls.

Since 1990 some interesting non-location studies on shopping centers have explored the microeconomic foundations of lease price discrimination and store space allocation (Benjamin, Boyle and Sirmans, 1992; Brueckner, 1993; and Pashigan and Gould, 1998). All of these studies are based on the concept of interstore externalities; thus, any expansion of these studies to include location aspects would necessarily be based on agglomeration economies.

During the same timeframe, two applied circulation studies on customer traffic in shopping centers suggested use of bid rent theory to explain the locational characteristics of stores (Sim and Way, 1989; and Brown, 1991). Both articles suggested that a bid rent-style model would appropriately describe customer circulation in a regional or super-regional shopping center. A seminal working paper in the economics tradition also suggested a bid rent foundation be used to explain store location in shopping centers (Fisher and Yezer, 1993).

The current paper deals with the spatial aspects of shopping centers using bid rent theory, leaving the more difficult aspects of agglomeration economies for others. ' What is important and novel is the treatment of inter-store location in the shopping center in the context of urban spatial structure.

Pashigan and Gould (1998) suggest that the failure or inability to internalize externalities contributed to the decline of the central business district (CBD) and the rise of shopping centers. So shopping centers are worthy of study generally if for no other reason than for the dramatic way they have reshaped retailing. PostWorld-War II suburbanization, economic growth and mass ownership of the automobile were necessary before shopping centers could thrive. But shopping centers experienced a sudden dramatic rise in growth when developers became convinced of the success of the enclosed mall concept in the late 1950s and early 1960s. By 1989, shopping centers captured 55.2% of all non-automotive retail sales in the United States.

The goals of this article are to provide economic explanations for location patterns of non-anchor stores in regional and non-regional shopping centers, relying on bid rent theory to explain optimal store location. Several issues were immediately recognized as complicating factors that needed to be dealt with. These included (1) the fact that Alonso's bid rent model operates only in perfectly competitive markets and (2) the transportation costs of the bid rent model are absent in the context of shopping centers.

This article proceeds as follows. First, the background literature on the shopping center industry is presented, which is followed by a discussion of the formal bid rent model as modified for a shopping center context. Next, testable hypotheses regarding relative locations of stores by type, size, rent, and sales are proposed for mall tenants that maximize profits for both tenants and the mall developer. Hedonic equations based on Rosen (1974) are then estimated to determine the economic impact of mall centers on store rent. The empirical tests employ a shopping center database containing 849 observations. The empirical results then provide strong support for the theory that stores' location and size follow Alonso's basic bid rent pattern. …

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