Urban Planning 538 - Economic Development Planning
April 14, 2005
Due to drastic changes in the macro-economy in recent decades, many cities, especially industrial cities, have suffered substantial economic losses. Much of these losses are very quantifiable and include: job losses, population declines, industrial and commercial tax base losses, and city income-tax losses. Related problems created by such economic losses are related to quality of life issues such as crime, blight, and racial and economic segregation. These problems have left cities scrambling and competing to protect current local economies and promote additional business and development.
Additionally, cities that maintain healthy economies often feel pressures to continue to expand economically or to protect current investments. In an effort to retain and build upon a healthy economic and demographic base, such cities often begin to match or surpass the incentives and place promotion efforts of neighboring and distant cities.
During the past several decades, most local governments in the United States have begun to actively promote economic growth--increasing the aggregate output of some economic indicator, such as number of jobs (Eisinger 1988; Wolman and Spitzlen 1996). Their promotion efforts have often focused on recruiting firms (Eisinger 1995), using such tactics as advertising, targeting firms, and, most important, providing subsidies (Sullivan 1999, 276).
To do so, places have developed highly matured public Economic Development Corporations (EDCs). To encourage investment in localities, such entities have conceived of and utilized plethora of development tools including, among others, financing mechanisms (TIFs, loans, tax abatements, etc.), job training, site development, and infrastructure improvements. Additionally, city promotion and marketing has become a very important aspect of development from a municipal and EDC standpoint. To compete effectively to retain and build a viable business and residential base, cities have relied heavily upon place promotion. Place promotion as a concept includes the implementation of a marketing mechanism to deliver and promote a specific location based upon incentives, available resources, and quality of life characteristics. Such an economic development tool aggressively seeks inward investment through solicitation of businesses, residents, and other forms of investment (stadiums, convention centers, miscellaneous construction and other activities). Among the latest and commonly referred tools to accomplish place promotion is the ‘target market analysis' (TMA).
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The TMA, sometimes referred to as a general market study, is a study performed by marketing and economic professionals to identify current and future market needs and surpluses within a specific geographic area. Though a TMA can be performed on larger, regional areas, most studies focus on smaller markets such as city centers or specific neighborhoods. Such a study may quantifiably demonstrate an unmet local and regional demand for specific retail, housing, and other services (based on style, price, location, etc). Though a study could conceivably be tailored to demonstrate quality of life issues, labor resources, and other location specific qualifications in an effort to attract large investment of the corporate nature, the TMA's primary function is to attract construction for office, retail, and residential (Avantini 2004). Additionally, such studies are used to recruit tenants for said uses.
A TMA is generally contracted out to a specialized planning or marketing firm by a municipality or other EDC. The content of the information gathered is tailored to meet the client's needs. For example, a municipality may want to determine regional demand for a convention center or a struggling downtown may wish to determine the extent and type of housing demand. Often, such studies concentrate on retail, office, and residential demand in city centers.
The process usually requires a few months, depending on the comprehensiveness of the study, and may or may not include specific planning and development recommendations. Data is gathered through a variety of traditional marketing techniques and by examining existing data. Such data sources and techniques include: demographic analysis, local economic and consumption data analysis, baseline market evaluation, local capacity analysis, resident and business surveys, telephone interviews, etc.
Once completed, such studies assist cities throughout the visioning and planning process by giving direction concerning potential land-use, density, etc. Essentially, a municipality or EDC shall use a TMA to determine unmet demands in the market place and then accommodate such demands by planning and creating sites and/or recruiting tenants for vacant retail or office space. For a good example of a TMA in a downtown that addresses both local and regional markets, see the City of Memphis Downtown Market Study.
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There are many circumstantial and dynamic costs and benefits to TMA's. Among the costs associated with TMA's are financial costs accrued by the study itself, limited life spans of data, inability to adapt to or address dynamic macro and micro economic shifts, limited scope and scale, limited applicability to specific investors, and difficulty determining accountability.
Clearly, there is a cost to performing a TMA. Generally, these studies are performed by the private sector and ranging from about 10K for a simple small town, residential study to a six-figure detailed study of a metropolitan downtown. Once these studies are completed, a locality must act quickly to make use of the gleaned data and recommendations. Though the study may by able to address trends and guide planning for years into the future, it is generally thought to lose value and weight with investors within five years (Avantini 2004; Gibb 2005).
Throughout the relatively short shelf life of the TMA, there are also issues of adaptability. Like any market study, TMA's are based upon national and local trends and market tastes and perceptions. Should sudden shifts in the national economy, a specific retail market, or the price of building materials change, a study may lose much of its validity to the dynamic market place. These trends are impossible to predict and difficult to accommodate within a TMA study. Therefore, much of the TMA's reliability rests on the stability and continuation of trends in the economy, for good and bad alike.
Because TMA studies cover such a vast array of markets and market determinants, it is difficult to develop a comprehensive study that accurately addresses all necessary components. Clearly, all studies are limited in their scale since their intent is to gather information on a specific locality. Within that locality, it is difficult to present data that shall satisfy the demands of all interested investors and market sectors. As such, there is often a limitation on how applicable and useful specific investors (indoor soccer for example) may find the study.
Lastly, it is difficult to measure the counterfactual of an economic development (ED) tool such as the TMA. Though many localities and planners claim success of TMA's in principle and practice, it is very difficult to ascertain the influence of any ED tool. Even with detailed regression analysis, research has yet to accommodate the complexity of ED performance. As such, it is argued by many that investment occurs independent of ED and would therefore occur with or without a TMA. Because there is never a control group in the unique circumstances involving place promotion, it is impossible to attribute success or failure to a TMA outside of subjective and intuitive judgments.
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Though less in number, the benefits of TMAs often balance or outweigh the costs (Gibb 2005). TMAs benefit place promotion by providing preliminary direction and guidance to economic development officials and investors. For investors, this means that there is detailed and reliable information available for markets across the nation that may be suitable for operations. As such, investors may be attracted to places where a demand for their product, service, or operation is not intuitively observable. Investors also stand to gain by saving costs on preliminary studies of their own. For ED officials, study data can be utilized to create area plans for infrastructure, services, and construction. Concept plans for specific developments are often derived from such studies and further marketed to private construction companies and other investors.
The TMA also has an advantage that many other ED tools do not. Unlike financial tools such as tax incentives or direct financial investment in infrasturcture that are often geared toward a specific project, TMA's have a value that is tied to a specific geography and not a particulary company or project. As such, TMA's can serve to attract many different types of investment based upon the current assets of a location. Furthermore, TMA's can guide any investment that does occur in such a way that funds are spent on viable ventures. This is true because the very nature of a TMA ensures that commercial, residential, and other economic activities are in demand.
Furthermore, TMAs act as a catalyst to development and regeneration by demonstrating a preparedness and plan on behalf of the locality to move forward with development. Like any other incentive, a TMA performed by an EDC sets the groundwork for development which can put a locality a step ahead. Essentially the EDC can demonstrate a willingness to work with investors, offer a degree of feasibility for investment, and ensure a future stability and capacity to investment in the locality. In conjunction with the provision of hard data, this effort on behalf of a locality carries enormous weight with investors (Avantini 2004).
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A TMA is a versatile ED tool that can be used to encourage investment ranging from general growth in a small downtown to development of a detailed mixed-use plan for a metropolitan brownfield site. However, the TMA has both costs and benefits as demonstrated so it must be consulted with discretion. If a municipality or EDC is interested in utilizing a TMA, consult the UW-Extension to learn more about the how specific process can be carried out and how the findings can be delivered and analyzed. In general, there are always a few points to always keep in mind.
Attempt a cost-benefit analysis to determine if the potential investment is worth a study. A preliminary consultation to ascertain specific needs and TMA potential is a must.
Time is of the essence. Have a plan ready that will make use of the TMA by incorporating the results into a feasible concept or general plan as well as delivering the data to investors.
Have an implementation strategy ready for aggressive marketing. A study cannot sell itself and must be promoted effectively. Utilizing site-selection consultants is more effective investment for specific plans and locations than approaching individual companies or investors.
Some of the biggest and most influential of the site location consultants are Deloitte Touche & Fantus in Chicago; Wadley Donovan in Morristown, New Jersey; Arthur Andersen in New York City; Fluor Daniel in Greer, South Carolina; and J. M. Mullis in Collierville, Tennessee” (Levine 1999, 4).
Though a TMA can attract interest from sericous investors, such investors are likely to always perform their own studies for confrimation purposes or to seek other specific information. An EDC must not get caught up in the specifics of the results or rely on investors making direct use of hard data. Rather, rely on trends and broad market demands.
Do not attempt to tailor or interpret a study to meet desires of the EDC. Instead let the TMA direct the EDC. Attempting to direct growth in a weak market segment where there is little or no demand has potential for disaster and squandering of public and private resources (i.e. soliciting development of the arts far beyond what a study has demonstrated demand for).
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University of Wisconsin-Extension Downtown and Business District Market Analysis:
Jackson City, MI Residential & Retail Market Study:
Normal, ILL Downtown Market Study:
City of Lewiston, Idaho Downtown Market Study:
City of Memphis, Tennessee Downtown Market Study:
Avantini, Carmine. Langworth, Strader, LeBlanc, & Associates. Personal Interview. 19 November 2004.
Eisinger, P.K. The Rise of the Entrepreneurial State. Madison : University of Wisconsin Press, 1988.
Eisinger, P. K. “State economic development in the 1990s.” Economic Development Quarterly. 9:2 p146-158, 1995.
Gibb, Megan. “Economic Development Strategies.” University of Michigan, Ann Arbor . 03 February 2005.
Levine, Andrew. “Marketing Your Community for Economic Development Trends and Insights from the Boardroom.” Public Management . 81:10 p6-10 N, 1999.
Sullivan, Daniel Monroe & Gary Paul Green. “Business Subsidies and Municipal Controls.” Journal of Urban Affairs . 21:3 p267-79, 1999.
Wolman, H., & Spitzley, D. “The Politics of Local Economic Development.” Economic Development Quarterly . 10 p115-150, 1996.
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