Appendix 1: Quantitative Approaches to Estimate the Demand for Retail Facilities


1. An econometric model is basically a mathematical function which makes use of regression analysis to determine the statistical relationship between retail floorspace demand and a basket of independent variables which were identified based on certain economic theories. One commonly used economic theory is that the level of consumer expenditure is directly related to the quantity of retail space. Another theory is that the supply or demand for retail floorspace in the proceeding year together with rent/price of the floorspace directly affects the demand for retail floorspace.

2. The major independent variables normally used to develop the econometric model for retail floorspace demand include:

(i) local population;

(ii)  working population;

(iii) visitor arrivals;

(iv)  visitor retail expenditure;

(v) retail sales;

(vi) retail and restaurant employment; and

(vii) retail premises price index.

3. The model is developed by a deductive process and ends up with a mathematical equation which best describes past trends on the demand for retail facilities. The basic steps for developing the econometric model are shown in Figure A1.


4. The expenditure-based methodology attempts to calculate the level of retail expenditure that can be generated within a catchment area and to convert the expenditure level into estimates of retail floorspace demand. The overall approach of the methodology is shown in Figure A2

5. The exercise requires data on the retail system in the base year, calibrating the retail model for the base year, projecting the relevant variables for the design year, and estimating the required retail floorspace to serve the retail system in the design year.

6. The data normally required to carry out the forecasting include:

(i) population, number of household and number of visitors;

(ii)  consumer expenditure;

(iii) shopping habits;

(iv)  existing retail floorspace and its commitments; and

(v) retail turnover.

7. However, it should be noted that the retail floorspace estimated from this method normally excludes retail services as there is no direct correlation between the expenditure on retail services and floorspace requirement. To overcome this deficiency, the standard practice is to make a simple additional allowance for retail service floorspace at a level of between 10% and 20% of the estimated retail floorspace demand.

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 Last revision date : May 2009