Nielsen -retail Growth-7 Indicators Of Population Growth Whitepaper

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Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth October 2008

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth By Terry Muñoz, Vice President & Industry Practice Leader, Retail, Restaurant and Real Estate Group, and Mike Mancini, Vice President of Data Product Management, Nielsen Claritas Executive Summary During the past several years, the U.S. retail industry has been reeling from a slow-growing population and a protracted economic downturn. Despite these challenging conditions, there are areas of the country that are experiencing population growth and can offer opportunities for retail businesses. To find these communities, analysts at Nielsen Claritas developed a statistical approach to score the growth potential of all U.S. markets and suggest strategies for expansion. By determining the key indicators of growth in markets of all sizes, this approach offers a significant advance for retailers even in tough economic times. Known collectively as Population Growth Indicators, seven factors strongly correlate with fast-growing markets: 1) large land areas, 2) booming suburban rings, 3) widespread affluence, 4) an increasing Hispanic population, 5) diversified employment, 6) long commutes and 7) the presence of lifestyle shopping centers. When the Population Growth Indicators are combined with demographic projections, retailers have a robust tool to identify locations with significant potential for market expansion—markets that may even lead the way to an economic recovery in the coming years. Now more than ever, retail success depends on the ability to identify growing markets, whether the task is retail expansion, current market optimization, or street-level site planning. Page 1

Introduction Across the nation and around the world, the recent crisis in the U.S. financial sector has thrown an already declining economy into a tailspin. Home values have dropped, foreclosures have skyrocketed, venerable Wall Street firms have failed and lending for even the creditworthy has dried up. And, as if these woes are not enough, another trend is compounding this downturn, particularly for companies with sizable retail operations—over the last eight years the U.S. population has experienced little growth, averaging only 0.9 percent annually. Slow population growth is particularly troubling to retailers, which rely on an expanding consumer base to increase earnings, extend into new trade territories and satisfy shareholders—not to mention Wall Street analysts expecting to see comparable store sales rise each year. Starbucks, Linens ’n Things and The Sharper Image are just a few of the many retailers recently forced to shutter stores and scale back expansion plans as a result of disappointing sales and flawed growth forecasts. And this gloomy scenario shows no sign of abating over the coming years, given the stagnating economy and current social trends marked by later marriages, smaller families and an aging population. Despite this troubling news, there are markets and population segments within the U.S.

that are experiencing healthy population growth, offering expansion opportunities for retail businesses even in a weak national economy. But finding these locations requires a different approach to identifying growth opportunities that goes beyond calculating new housing starts—a typical metric employed by site planners. Using a statistical technique that evaluates population growth along with historic trends, Nielsen Claritas analysts have isolated seven demographic and economic indicators that strongly correlate to growing markets in both metropolitan and micropolitan communities. (Metropolitan areas have a population of at least 50,000; micropolitan areas have a population between 10,000 and 50,000.) These drivers of growth are based on a variety of Nielsen Claritas data products—including Pop-Facts®, the Shopping Center Database and Business-Facts®—in addition to the PRIZM® segmentation system, which classifies Americans according to 66 lifestyle types and 14 social groups. By combining the seven indicators with real world experience, this approach offers retailers a new way of identifying areas for market expansion in a challenging economic environment. Businesses hoping to thrive in this current recessionary period, or wanting © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

to position themselves for the future, should look to these Population Growth Indicators to identify prime markets for new store openings, existing store renovations and high-return marketing programs. Challenging Market Conditions During the last few years, retail expansion opportunities have suffered greatly. The high cost of capital required to develop new locations, low consumer confidence and growing unemployment have all caused retailers to scale back their expansion plans and shopping center developers to delay new projects indefinitely. In the commercial real estate industry, retail vacancies have soared to the highest level since 1996. In the first quarter of 2008, the vacancy rate of neighborhood and community shopping centers reached 7.7 percent—the highest level in 12 years. This past May, the International Council of Shopping Centers forecast 5,770 store closings in 2008—an increase of 25 percent from only a year ago. In addition, discretionary consumer spending has declined as the cost of fuel and food has risen and home values have slumped. But not all areas of the country are feeling the pinch. Population growth is a local phenomenon: one community can fare far better than the country as a whole. To evaluate the landscape, analysts examined the nation’s 936 CBSAs (Core Based Statistical Areas), which include both metropolitan and micropolitan areas accounting for 93 percent of the U.S. population. Between 2000 and 2008, 316 CBSAs experienced high population growth, defined by analysts as a growth rate at least 10 percent above the national average of 8.5 percent over the eight-year period. Meanwhile, 371 CBSAs recorded average growth and 249 CBSAs experienced declining populations.

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America’s Top 20 Markets by Volume Growth: 2000-2008

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

CBSA Name

2008 Population

Atlanta-Sandy Springs, GA Dallas-Fort Worth-Arlington, TX Phoenix-Mesa-Scottsdale, AZ Houston-Sugar Land-Baytown, TX Los Angeles-Long Beach, CA Riverside, CA Washington, DC-VA-MD-WV New York, NY-NJ-PA Miami-Fort Lauderdale, FL Las Vegas-Paradise, NV Chicago, IL-IN-WI Orlando-Kissimmee, FL Tampa-St. Petersburg, FL Sacramento-Arden, CA Charlotte-Gastonia, NC-SC Austin-Round Rock, TX Seattle-Tacoma-Bellevue, WA Denver-Aurora, CO San Antonio, TX Minneapolis, MN-WI

5,357,017 6,164,066 4,223,725 5,665,312 13,304,944 4,170,780 5,384,723 18,871,770 5,526,947 1,875,245 9,584,686 2,078,566 2,747,020 2,129,931 1,653,103 1,570,097 3,338,639 2,464,452 1,985,591 3,227,334

% Growth Population 2000-2008 Growth 2000-2008 26.1% 19.4% 29.9% 20.1% 7.6% 28.1% 12.3% 3.0% 10.4% 36.3% 5.3% 26.4% 14.7% 18.5% 24.3% 25.6% 9.7% 13.1% 16.0% 8.7%

1,109,036 1,002,522 971,849 949,905 939,317 915,959 588,540 548,768 519,383 499,480 486,370 434,005 351,023 333,074 322,655 320,334 294,761 285,156 273,888 258,528

Figure 1. Source: Pop-Facts

In general, the nation’s fastest growing markets by population tended to be large metros in the South and West—areas such as Atlanta, GA; Dallas, TX and Phoenix, AZ. Nine markets added more than 500,000 people over the last eight years. Many benefited from retirees resettling to warmer climates. With the oldest Baby Boomers now in their early 60s, Sun Belt retirement communities are likely to continue to grow as the number of older Americans steadily increases. This population shift also reflects economic forces at work. Since 1990, jobs have been leaving the industrial heartland. In fact, only four of the nation’s biggest cities actually lost population since 2000: Three were Rust Belt cities—Buffalo, NY; Pittsburgh, PA

and Cleveland, OH—and one metro market, New Orleans-Metairie-Kenner, LA was battered by Hurricane Katrina in 2005, causing a 13.4 percent loss in population between 2000 and 2008 to 1,140,234. Hardly a permanent decline, the New Orleans market already shows signs of coming back: Between 2006 and 2007, its population grew by 13.8 percent—faster than any other U.S. city with more than 100,000 people. Growing markets come in all sizes, ranging dramatically from Los Angeles, CA (pop. 13,304,944) to Elko, NV (pop. 49,536). But when businesses evaluate markets for expansion, they typically select locations with a population density similar to their target audience. To reflect this industry © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

Three Classifications, 15 Types of CBSA Markets Growth Index 2000-2008

CBSA Market Groups

Characteristics

Metro Cities (A Markets) A1 Top of the Heap A2 Growing Gateways A3 High Growth Cities A4 Mid Growth, High Cost A5 Mid Growth Cities A6 Low Growth Cities Metro Towns (B Markets) B1 Elite Towns B2 High Growth Towns B3 Mid Growth Towns B4 Mid-Mfg Towns B5 Low Growth Towns Micro Towns (C Markets) C1 Top-ville C2 Growing Micros C3 Mid-Americana C4 Struggle-ville

200,000+ population high growth, high diversity and high education 177 high growth and above-average diversity 183 high growth 143 below-average growth, high home values 68 below-average growth, high home values 75 low growth 4 50,000-200,000 population high growth and above-average education 155 high growth, average education 157 below-average growth, below-average manufacturing 60 below-average growth, high manufacturing 64 declining populations -7 <50,000 population high growth 170 above-average growth 126 below-average growth 54 declining populations -11

Figure 2. Source: Pop-Facts; Index of 100 = U.S. average or 8.5%

practice when evaluating markets, Nielsen analysts classified the nation’s CBSAs into three primary groups and 15 subgroups based on size and core demographics: • Metro Cities consists of six subgroups of “A” markets characterized by large metros with populations over 200,000; • Metro Towns is comprised of five subgroups of “B” markets featuring midsized cities with populations between 50,000 and 200,000; • Micro Towns is made up of four subgroups of smaller “C” markets with populations under 50,000. The analysis revealed that seven of the 15 groups contain markets growing at high rates—from the diverse metro areas of Growing Gateways, growing 83 percent faster than the national average, to the small towns of Growing Micros, expanding at a rate 26 percent above the general population. A ranking of the markets with the highest Page 3

rate of population growth reveals a number of Metro Towns and Micro Towns with populations under 100,000 people. The top three—Palm Coast, FL; Fernley, NV and St. George, UT—all grew by more than 50 percent since 2000. Located beyond congested metros, they’ve attracted jobs, retailers and residents thanks to low crime rates and fewer traffic jams. Some of the smaller markets, like St. George, are close to national parks and wilderness areas that appeal to young families and retirees. Many, like Palm Coast and Fernley, are within commuting distance of a metropolitan city center (Jacksonville, FL and Las Vegas, NV respectively), attracting young families to nearby jobs. Population Growth Indicators versus Traditional Measures Traditionally, corporate real estate professionals have assessed growth opportunities by working with local planning boards to gather data on new housing starts or planned shopping centers. This approach, however,

Growing Markets by Population Size

Figure 3. Source: Pop-Facts © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

is far from foolproof: In Phoenix, AZ many houses built in recent years were bought by investors rather than residents. When the housing market collapsed, speculators couldn’t find buyers and lenders foreclosed on their properties, resulting in more than

Population Growth Indicators Market Drivers

Correlation

1. Space to Grow Large Land Areas 2. Booming Suburban Rings The Affluentials PRIZM Households Middleburbs PRIZM Households 3. Widespread Affluence Household Income $75,000-$100,000 $100,000+ $150,000+ Education Attainment Some College, No Degree Some College & Associate Degree Bachelor Degree Home Value $300,000-$750,000 4. Increasing Ethnicity Hispanic Households 5. Diversified Employment Industry of Employment Construction Retail Business Establishments Finance, Insurance & Real Estate Credit Agencies, Not Banks Furniture & Home Furnishings Business Services Engineering & Management Services Amusement & Recreation Services 6. Long Commutes 30-60 Minutes >60 Minutes 7. High-End Shopping Centers Lifestyle Centers

0.27 0.20 0.23

0.26 0.28 0.26 0.28 0.24 0.22

The new method for identifying growth areas allows marketers to extend their knowledge by combining standard five-year growth projections with new measures of demographic data, employment variables and lifestyle types. To uncover the most useful metrics, analysts investigated which factors strongly correlated with high-growth communities. The research revealed the seven key indicators, including demographic drivers such as high incomes, educational attainment and diversity. These Population Growth Indicators also featured specific

0.32

0.50 0.24 0.38 0.28 0.40 0.49 0.42 0.23 0.25 0.21 0.28

economic traits such as a high concentration of residents employed in construction, business services and recreation. And there were even some surprising criteria among the indicators, such as the presence of lifestyle-themed shopping centers—those open-air malls built to resemble a pedestrian-friendly urban village. The most powerful indicators of growing markets are described in the sections that follow, accompanied by lists of the top markets for each indicator. 1. Space to Grow: Larger Land Areas Bigger is better when it comes to population growth. According to the analysis, markets with larger land areas tended to grow the most over the last eight years. The 25 largest markets rose by an average 10.8 percent—23 percent higher than the

America’s Top Markets by Land Area

0.36

Figure 4. Sources: Pop-Facts and Business-Facts Page 4

23,000 foreclosures this past May—the seventh worst in the nation, according to RealtyTrac, an online marketplace for foreclosure properties. In a fast-changing economy, relying on outmoded approaches to assess opportunities means a developer may have to wait years for consumers to appear.

Metro Cities - A Markets A2 Riverside, CA A1 Anchorage, AK A1 Phoenix-Mesa-Scottsdale, AZ A3 Boise City-Nampa, ID A1 Salt Lake City, UT Metro Towns - B Markets B1 Flagstaff, AZ B2 Lake Havasu City-Kingman, AZ B2 Ontario, OR-ID B3 Fairbanks, AK B1 Alamogordo, NM Micro Towns - C Markets C2 Elko, NV C1 Pahrump, NV C3 Rock Springs, WY C3 Bishop, CA C3 Riverton, WY

2008 Population

Land Area Index

4,170,780 368,701 4,223,725 594,998 1,092,618

1560 1510 834 675 546

130,370 203,337 54,800 88,088 62,739

1066 762 589 422 379

49,536 45,598 39,444 18,200 37,684

1222 1039 597 584 526

Figure 5. Source: Pop-Facts; Index of 100 = U.S. average or 1,170 square miles © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

national average. Retailers should not underestimate the importance of large markets. Businesses that serve the nation’s 10 largest markets reach more than 80 million Americans—28 percent of the nation’s total population. Markets with larger land areas can absorb growth more easily, leading to even faster growth. While the average size of a CBSA is 1,710 square miles, analysts found a strong correlation between growth and markets like Riverside, CA, (15 times larger than average); Elko, NV (12 times larger) and Flagstaff, AZ (10 times larger). Many of these markets are found in the Mountain and Pacific states where relatively new cities have had more room to spread out before encroaching on the borders of other CBSAs. (Geographical boundaries in the desert and mountain areas may limit expansion opportunities.) There are also plenty of sparsely populated, but geographically large communities that are growing thanks to the allure of small-town charm. Tiny Elko (pop. 49,536) grew by 34 percent in the 1990s and another six percent since 2000, in part by offering an array of outdoor activities like ice fishing, hunting, snowmobiling and skiing. Accommodating zoning laws also have helped some Western markets grow by supporting sprawling development without the burdensome regulation found in older cities in the Northeast. 2. Booming Suburban Rings: PRIZM Affluentials and Middleburbs Households Development in large areas go hand-inhand with the lifestyles that emerge within these fast-growing communities. When analysts looked at PRIZM lifestyle segments in expanding areas, the ones that dominated fell into two suburban social groups: The Affluentials (characterized by upscale, outer-ring suburbs filled with white-collar couples and families) and Middleburbs Page 5

Fastest Growing Markets with High Rates of Residents in Suburban Rings 2008 Population Metro Cities - A Markets A1 Portland-Vancouver, OR-WA A1 Minneapolis, MN-WI A1 Seattle-Tacoma-Bellevue, WA A3 Lincoln, NE A3 Holland-Grand Haven, MI Metro Towns - B Markets B1 Napa, CA B4 Racine, WI B1 Fargo, ND-MN B1 Bloomington-Normal, IL B1 Columbia, MO

Suburban Ring Index

2,182,734 3,227,334 3,338,639 287,701 261,387

261 253 222 215 212

136,092 195,375 189,883 163,626 158,941

208 154 149 149 136

Figure 6. Sources: Pop-Facts and PRIZM; Index of 100 = U.S. average of The Affluentials and Middleburbs households; none are in C Markets

(midscale couples of diverse ages and educations in inner-ring suburban neighborhoods). PRIZM, Nielsen Claritas’ signature segmentation system, classifies the population into 66 segments based on various socio-economic data, such as income, age, education, presence of children, population density and household composition. Nationwide, the markets with the most Affluentials and Middleburbs residents tend to be large metros—cities like Portland, OR; Minneapolis, MN and Seattle, WA. Generally speaking, the growth in many of these areas resembles a doughnut, with the fast-growing suburban areas forming a ring around the metropolitan core. While social commentators like to celebrate the return of the nation’s downtowns, the real action is still occurring in America’s suburban frontier, propelled by several population torrents: active seniors looking for attractive retirement communities; young singles seeking affordable townhouses; and immigrants who are leapfrogging over urban apartments to settle in suburban neighborhoods near good schools and steady employment. Indeed, many fast-growing

“cities” of the early 21st century—Los Angeles, CA; Atlanta, GA; Houston and Dallas, TX—are primarily collections of suburbs with only marginal links to an urban core. Understanding the importance of lifestyle analysis can help businesses find opportunities even in markets where growth is slow. At Cushman & Wakefield, the largest privately held real estate services firm in the world, retail analysts look beyond demographics when assessing the residents living in a client’s trade area. For prospective shopping center tenants, brokers analyze the surrounding customer base using PRIZM lifestyle segments to determine whether the retailer can reach its target audience. For landlords, the Cushman & Wakefield brokers also analyze trade area customers by PRIZM types, then develop a target tenant list for the site. “Analyzing population growth is getting more granular,” says Matthew Winn, Managing Director of the Retail Consulting Group at Cushman & Wakefield in Atlanta, GA. “It’s no longer enough to say how many people earning $75,000 a year live within a five-mile © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

radius of a shopping center. Now we want to know their lifestyle and psychographics, and whether the daytime population and evening shoppers are a good match for tenants. The goal is to give prospective tenants a reason to choose your site rather than the one two miles down the road.” 3. Widespread Affluence: Following the Money For most of the last century, wealthy Americans have settled in the upscale suburbs of large metros. In examining the data further, analysts found several factors related to high net worth that correlate with high-growth communities: college educations, uppermiddle-class incomes and healthy home values. Many of the nation’s affluent markets—communities such as Los Alamos, NM; Silverthorne, CO and Jackson, WY— are modest in size. This trio of Micro Towns each have a population of under 30,000, with a disproportionate number of people who have college educations, incomes over $75,000 (the nation’s median is $43,537) and homes valued between $300,000 and $750,000. In terms of education, research shows the correlation strongest in markets where residents have at least some college education or a bachelor’s degree. The full list of affluent, growing markets shows a decidedly western skew, partly reflecting the migration of knowledge workers from manufacturing centers of the Northeast to the high-tech job centers in the western states. As people become more specialized in a given field, their incomes increase, but the number of jobs that fit their expertise narrows. Accordingly, educated people tend to travel further to find acceptable jobs. Places like San Jose, CA; Edwards, CO and Los Alamos, NM, are meccas for college graduates who work hard in science and technology and Page 6

America’s Top Markets by Affluence 2008 Population Metro Cities - A Markets A4 San Jose-Sunnyvale, CA A1 Washington, DC-VA-MD-WV A1 Oxnard-Thousand Oaks-Ventura, CA A4 Bridgeport-Stamford-Norwalk, CT A4 San Francisco-Oakland, CA Metro Towns - B Markets B1 Edwards, CO B1 Napa, CA B1 Truckee-Grass Valley, CA B1 Kahului-Wailuku, HI B1 Lexington Park, MD Micro Towns - C Markets C3 Los Alamos, NM C1 Silverthorne, CO C1 Jackson, WY-ID C3 Juneau, AK C1 Gardnerville Ranchos, NV

Affluence Index

1,833,625 5,384,723 820,716 901,429 4,281,491

164 163 161 157 155

59,428 136,092 101,146 144,043 101,831

150 147 143 137 135

19,258 27,334 27,816 30,704 47,589

174 152 143 140 137

Figure 7. Sources: Pop-Facts and PRIZM; Index of 100 = U.S. average of indices of household income, educational achievement and home values

play even harder by skiing, golfing, boating and hiking at nearby recreational parks. 4. Increasing Ethnicity: Growing Hispanic Population Immigration drives the nation’s population growth, and no group has provided more of a boost than Hispanics. In 1990, the Hispanic population in the U.S. was 7.9 percent; today, it is nearly 16 percent and rising. According to a recent Goldman Sachs study, this market is growing three times faster than the U.S. population in general. Demographers at the Pew Research Center predict that by 2050 the U.S. will be a “minority majority” nation, with Hispanics making up 29 percent of the total population. The shift has already occurred in traditional gateway cities like Los Angeles, CA; San Antonio and El Paso, TX—border towns and

booming coastal metros with exploding population growth. While New York, NY and Chicago, IL served as magnets for newcomers at the turn of the 20th century, today immigrants from Latin America and Asia typically head to Los Angeles and San Francisco, CA and Miami, FL. They settle in these places for the same reasons earlier waves of Europeans came to the U.S.—friends and family members had already settled there and formed self-sustaining ethnic communities. This is particularly true of less skilled immigrants who rely on kinship and informal networks to land jobs. They’re also attracted to areas with climates conducive to varied recreational activities and low costs of living. Not surprisingly, those markets with the highest proportion of Hispanics tend to be along or near the Mexican border—places like Rio Grande City, Laredo and Raymondville, TX. © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

America’s Top Markets by Hispanic Population 2008 Population

% Hispanic

241,078 728,091 397,924 750,291 434,172

94.9% 89.6% 86.4% 81.9% 56.7%

63,816 53,317 169,463 199,411 198,120

97.4% 94.9% 76.3% 65.3% 56.9%

20,848 45,234 48,545 41,322 29,220

86.7% 80.6% 79.1% 77.1% 76.5%

Metro Cities - A Markets A2 Laredo, TX A2 McAllen-Edinburg-Mission, TX A2 Brownsville-Harlingen, TX A2 El Paso, TX A2 Visalia-Porterville, CA Metro Towns - B Markets B2 Rio Grande City-Roma, TX B2 Eagle Pass, TX B2 El Centro, CA B2 Las Cruces, NM B2 Yuma, AZ Micro Towns - C Markets C3 Raymondville, TX C1 Nogales, AZ C1 Del Rio, TX C3 Alice, TX C4 Las Vegas, NM

Figure 8. Sources: Pop-Facts and PRIZM; U.S. average = 15.9% Hispanic

America’s Top Markets by Diversified Employment 2008 Diversified Population Employment Index Metro Cities - A Markets A2 Las Vegas-Paradise, NV A1 Naples-Marco Island, FL A2 Cape Coral-Fort Myers, FL A3 Provo-Orem, UT A3 Spokane, WA Metro Towns - B Markets B5 Key West, FL B1 Hilton Head Island-Beaufort, SC B1 Truckee-Grass Valley, CA B1 Bozeman, MT B1 Carson City, NV Micro Towns - C Markets C1 Heber, UT C1 Jackson, WY-ID C1 Kill Devil Hills, NC C1 Montrose, CO C1 Gardnerville Ranchos, NV

1,875,245 333,295 608,182 495,921 453,400

130 129 126 123 119

76,322 169,612 101,146 84,398 55,550

127 125 125 121 121

21,562 27,816 34,521 39,620 47,589

143 131 127 124 123

5. Diversified Employment: Construction, Retail and Business Services One of the tried and true economic axioms is that “people follow jobs and retailers follow people.” However, Nielsen Claritas research shows that people don’t follow all jobs equally. In fact, over the last eight years the places most likely to experience population growth had an abundance of jobs in two industries—construction and retail—as well as diversified employment opportunities in businesses ranging from finance and credit to engineering and recreation. Many resort and retirement cities attracted construction and retail workers as aging Boomers and young families alike streamed into these areas looking for affordable housing and a relaxed lifestyle. Retailers followed the increased population, providing products and services for the expanding consumer market. The fastest-growing markets also have something else in common: solidly diversified economies. Analysts found a strong correlation between growing communities and a whitecollar workforce involved in business services, finance, engineering and management services, as well as amusements and recreation. Viable opportunities in business services, management and engineering create vibrant economies nourished by an educated, wellpaid workforce. Successful economies also seem to promote a leisure-intensive lifestyle, as many fast-growing communities feature a significant number of jobs involved in gambling, recreation, hotels, theme parks and cultural venues. Among the hotspots experiencing strong construction starts, a growing retail environment and a diversified employment base are resort communities such as Jackson, WY; Key West, FL and Hilton Head Island, SC.

Figure 9. Sources: Pop-Facts and Business-Facts; Index of 100 = U.S. average score of eight employment categories with high correlations to growing markets Page 7

© 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

But an over-reliance on construction and finance jobs can have a downside risk. Both industries have been hurt by the housing crisis and credit crunch. As construction jobs grow scarce during a protracted downturn in the housing industry, workers leave town. In markets that relied too heavily on construction—such as Las Vegas, NV; Phoenix, AZ and Naples, FL—analysts expect to see a marked slowdown in population growth and a rise in housing foreclosures. Las Vegas, whose population grew 36 percent over the last eight years, is projected to expand by less than half, 17 percent, between now and 2013—still a respectable growth rate, but not likely enough to fill the city’s inventory of empty homes. In Naples, a glut of vacation properties has forced builders to lay off workers as the pace of population growth is expected to decline from 52 percent during the last eight years to 16 percent for the next five.

As one Naples real estate broker put it, “We’ve gone from an extraordinary real estate market to a merely normal one.” 6. Long Commutes: A Price of Growth Infrastructure is also important in growing communities. Fast growth correlates with significant numbers of air transport jobs, workers with home offices and, unfortunately, long commutes. Obviously, thriving communities need good airport connections to accommodate business and vacation travelers, as well as high-speed Internet access so workers can connect to employers from home offices. Fast-growing communities also tend to saddle workers with long commute times, typically much longer than the national average of 25 minutes. The long commute likely reflects many workers living in the more affordable suburban fringes of metro areas. It’s not just the miles, though, that lengthen these commutes. More

America’s Top Markets for Long Commutes 2008 Population Metro Cities - A Markets A4 New York, NY-NJ-PA A1 Washington, DC-VA-MD-WV A4 Bremerton-Silverdale, WA A4 Vallejo-Fairfield, CA A4 Poughkeepsie-Newburgh, NY Metro Towns - B Markets B2 East Stroudsburg, PA B2 Picayune, MS B2 Athens, TX B1 Granbury, TX B1 Oak Harbor, WA Micro Towns - C Markets C1 Culpeper, VA C1 Pahrump, NV C3 Walterboro, SC C3 La Follette, TN C1 Bonham, TX

> 30 Min Commute Index

18,871,770 5,384,723 244,382 421,678 679,838

182 163 162 158 149

171,184 57,241 81,248 58,925 81,252

174 173 173 160 156

46,776 45,598 39,658 41,179 34,172

191 170 163 141 141

Figure 10. Source: Pop-Facts; Index of 100 = U.S. average of those with commutes over 30 minutes and between 30-60 minutes Page 8

frustrating are the minutes spent in traffic jams caused by the undesirable side effects of fast growth: feeder roadways not built to accommodate rush hour traffic, the absence of public transit in the hinterlands and uncontrolled sprawl that did not account for car-dependent lifestyles. These are the ills of life in the fast-growth lane, though they can be mitigated by planners who recognize the presence of Population Growth Indicators in their communities and address the issues accordingly. 7. High-End Shopping Centers: Lifestyle Centers One unexpected result of the boom in affluent commuter suburbs is the emergence of high-end shopping centers known as “lifestyle centers.” A kind of outdoor mall, they feature natural sunshine, tree-lined streets, stress-relieving fountains and plenty of shops and restaurants. Unlike the massive, windowless suburban malls anchored by a department store, these centers resemble quaint villages filled with high-end retailers like Talbots, Coach, Chico’s, Banana Republic and Starbucks. And they’re designed for upscale suburban professionals who want the convenience of driving up to the shops, parking their cars and downing a Frappuccino® while lounging on an overstuffed chair. Ironically, these suburban creations are designed to resemble the downtown commercial districts that shoppers fled long ago. At a time when mall expansion is declining, lifestyle centers are growing at a rate of several dozen annually. Today, there are more than 400 of these tabernacles of consumerism, with their narrow pedestrian streets and little plazas. And they’re sprouting up in growing mid-sized metros and college towns like Yakima, WA; Ann Arbor, MI and Bend, OR. Because lifestyle © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

America’s Top Markets by Lifestyle Shopping Centers 2008 Population Metro Cities - A Markets A5 Yakima, WA A3 Sioux Falls, SD A2 Greeley, CO A1 Ann Arbor, MI A3 Boise City-Nampa, ID Metro Towns - B Markets B1 Bend, OR B1 Brainerd, MN B1 Bozeman, MT B1 St. George, UT B1 Panama City-Lynn Haven, FL

Lifestyle Centers Index

235,661 219,419 247,702 347,834 594,998

1049 858 590 572 464

159,560 91,205 84,398 138,103 167,152

1716 1348 1180 1049 1011

Figure 11. Sources: Pop-Facts and the Shopping Center Database; Index of 100 = U.S. average of the proportion of lifestyle centers to total shopping centers in market; there are no lifestyle centers in C Markets

centers require a relatively large population base to thrive, developers have yet to build any in Micro Towns (“C” Markets). However, their presence in larger markets reflects the need to create new shopping experiences for consumers bored with traditional malls. Growing markets provide residents with new retail experiences at places like lifestyle shopping centers. Conclusion: Predicting the Future Populations do not necessarily grow in a linear fashion, and current growth patterns won’t necessarily continue. Every year, Nielsen Claritas analysts generate five-year projections for all CBSAs (in addition to cities, counties and states) by combining public U.S. Census Bureau estimates and demographic data at small levels of geography. Between 2008 and 2013, they estimate that CBSAs will grow an average of 5.2 percent nationwide, though in some smaller markets in the South and West the pace may rise above 25 percent as Boomers head to Sun Belt retirement communities and smaller towns to wind down their working years. According to their analysis, Palm

Coast, FL should experience the greatest percentage of growth among all the nation’s cities, thanks to its location as a bedroom community halfway between Daytona and St. Augustine, FL. Others, like Greeley, CO and Heber, UT, are resort communities that cater to active retirees and families who appreciate hiking, skiing and a

contemporary western lifestyle. These markets are pegged to lead the nation’s economic recovery over the next five years. But when Nielsen Claritas analysts combined their five-year population projections with the Population Growth Indicators, a map emerged that suggested different growth strategies and opportunities for retailers. After assessing each market according to both its projected growth over the next five years and the presence of Population Growth Indicators, Nielsen Claritas analysts used a strategic planning method to provide four recommendations for businesses seeking to expand their operations. • Dominate: With both strong projected growth and strong potential for growth based on the Population Growth Indicators, these markets should represent safer bets for retail expansion over the next five years. These markets include college towns and booming resort locations like Las Vegas, NV; Austin, TX and Bend, OR.

CBSAs by Market Strategy—Projected Growth vs. Demographic Potential

Figure 12. Sources: Pop-Facts, Business-Facts and the Shopping Center Database Page 9

© 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

• Invest: With moderate projected growth, but strong potential based on their Population Growth Indicators, these markets may grow faster than expected, indicating possible opportunities for retailers. Among these markets are such knowledge worker havens as Los Alamos, NM; San Jose, CA; Boulder, CO and Minneapolis, MN. • Maintain: Markets in this category may be riskier for retailers because, though their projected growth is above average, their potential according to the Population Growth Indicators is below average. In markets like New Orleans, LA; Coeur d’Alene, ID and Brownsville, TX, retailers may want to more thoroughly research any expansions plans. • Innovate: With weak scores for both projected and potential growth, the many small markets in this group would need extra money and attention—perhaps a new retail concept or a different product mix—to become a promising retail opportunity. Among the communities in this category are college towns like Columbia, MO; Corvallis, OR and Greensboro, NC.

expansion opportunities in overlooked markets. With this new approach to analysis based on the Population Growth Indicators, retailers now have a tool to help them identify these rising stars and stake out the best locations to attract their target customers. For those retailers willing to embrace this paradigm shift in understanding growth, many may be in a position to reap the rewards for their expansion efforts—or at least avoid costly mistakes. Behind the Numbers For the methodology, Nielsen Claritas analysts examined hundreds of variables before determining several dozen that were correlated to percent growth from 2000 to 2008. Variables with strong positive and negative correlations were grouped by variable type and selected to reflect collinearity (e.g., variables like income and education that tend to track together). This process reduced the set of Population Growth Indicators to the core seven that were then used to score and classify CBSA markets. And the maps and tables reflect markets that are outperforming others, according to a proprietary population growth analytical approach that utilizes Pop-Facts demographic estimates and projections data.

Admittedly, any strategic plan that combines historical indicators with future estimates has inherent limitations. The hallmarks of growth can evolve over time. And as the Population Growth Indicators show, growth can manifest itself in unexpected ways. In addition, the importance of specific indicators can vary depending on a retailer’s target audience.

Inverse or negative correlations (such as high school education) were not used because analysts did not want to “double-count” against low growth markets; by definition, markets with fewer college graduates will have a higher percentage of residents with only a high school education or less.

Nevertheless, retailers can use this analysis to quickly assess a market’s potential and determine where it fits into their overall development strategy. Even in a sluggish economy with slow population growth, this innovative modeling approach can suggest

While correlations provide valuable insight, a strict cause and effect relationship should not be inferred. For example, a high percentage of construction workers in a market may be highly correlated to growth, but it’s doubtful that simply having an abundance of

Page 10

construction workers will create high growth. More likely, construction workers are attracted to markets that are already growing and need new homes, roads and shopping centers—as well as the workers to build them. For other variables, like income, education and business services employment, the cause versus effect is less clear. While high growth markets are more likely to attract educated professionals in search of opportunity, an abundance of well-educated professionals may also lead to high growth in a market as potential employers are drawn by the talent pool. In this case, the presence of educated residents is a cause, rather than an effect, of growth. Diversity is another factor that could be a cause—diverse markets are more dynamic and grow faster—or an effect, because growing markets tend to attract more immigrants. Ultimately, markets with an educated and diverse work force likely will attract business services and technology innovators and, because people tend to follow jobs— growth will follow. These assumptions were made when scoring, classifying and organizing CBSA markets along the DominateInvest-Maintain-Innovate dimensions cited in the conclusion. © 2008 The Nielsen Company. All rights reserved

Finding Growth in Challenging Times: Seven Indicators to Evaluate Population Growth

Case Study: Growth Within Markets and ‘The New U’ Site location analysis is a local business, helping retailers identify growing markets, as well as profitable neighborhoods within markets. Population Growth Indicators can pinpoint a growing neighborhood, consider the U Street Corridor in Northwest Washington, D.C., an area whose population jumped 23 percent between 2000 and 2008. Once known as the “Black Broadway” for its clubs where luminaries like Duke Ellington and Ella Fitzgerald performed, the area deteriorated after the 1968 riots sparked by the assassination of Dr. Martin Luther King. By the mid-1970s, the area was a center of drug dealing, crime and poverty. But a decade ago, the area began to change for the better with the opening of a municipal office building and a new subway stop that brought new jobs and retailers. Young people in search of urban living near downtown jobs moved into inexpensive rowhouses and apartments. Soon, new bars and ethnic restaurants arrived to cater to hip twentysomethings, and chains like Starbucks and Maggie Moo’s moved in near classic joints like Ben’s Chili Bowl and the Florida Avenue Grill. Michael Sussman, a real estate developer who built two condominium buildings in the neighborhood, describes the transformation: “The new residents who moved in were

kids who thought it was cool to live among diverse people and funky restaurants,” he says. “But once they made up

rapidly. Using the PRIZM segmentation

a critical mass, the retailers followed. Restaurants that once avoided this area began fighting to get a location here.” The U Street Corridor was renamed “The New U.”

system, analysts determined that last year the dominant lifestyle segment was No. 29-American Dreams (characterized as urban, multi-ethnic and middleclass). This year, the neighborhood was classified No. 4 Young Digerati (young, urban and wealthy)—a remarkable rise of 25 rungs on PRIZM’s socioeconomic ladder. On a Saturday night, the sidewalks are packed with young clubbers, cell phones glued to their ears, ducking into sushi bars and jazz clubs. And with the younger generation continuing to seek urban amenities far from the culde-sac landscape, the New U’s future lifestyle looks bright.

Since 2000, the revitalized area has become a magnet for the young and upscale. When Nielsen Claritas analysts examined the area, they found that the population increase coincided with rising affluence, according to the Population Growth Indicators. During the last eight years, the number of households earning over $75,000 more than doubled to 1,897, and the median

U Street Corridor, Washington, D.C.

Figure 13. Source: PRIZM

For more information call (877) 707-2382 or visit us at www.claritas.com.

Nielsen Claritas © 2008 The Nielsen Company. All rights reserved. CORP_COL_5064_1008

home value jumped 167 percent to $684,013. Lifestyles have also improved