'Alarming' Increases In Shopping Center Vacancies
Empty retail space increased dramatically over the last six months, according to data compiled by commercial real estate brokers and investment advisors.
"Chain retailers have announced plans to close more than 6,500 outlets by year's end, even as shopping center construction continues at a furious pace. Developers are on track to bring an estimated 137 million square feet of new retail space online this year. That's more than the average annual growth during the first half of the decade.
Suzanne Mulvee, senior economist at Property & Portfolio Research, estimates that the overall retail vacancy rate will reach 12.5 percent later this year. That's roughly 1.2 billion square feet, or around 40 square miles of empty shopping space (plus perhaps another 100 square miles of unused parking lot). To put that into perspective, the total land area of the city of Miami is 36 square miles. Between 1990 and 2005, the amount of retail space per capita in the U.S. doubled, from 19 to 38 square feet. In contrast, European countries generally have less than 10 square feet per person."
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Lots of interesting nuggets here
Fairly accurate article though I only really agree with one of their conclusions - reduce tax abatements/subsidies. It still amazes me how much of this goes on in the name of boosting local or state coffers via property or sales taxes, in some cases.
I think the writer underestimates, to some degree, the market impacts. We do have more per capita retail space in the USA than other countries due to a number of things like it's easier to start a business, more developed capital markets, and probably money-laundering businesses.
But, with market vacancy pushing to high levels, construction will pretty much halt, unless they are already going vertical. Construction lenders are pulling out and the take out options are minimizing. The biggest phenomenon they overlooked in this article is the volume of ridiculous, relatively undisciplined capital that flooded the commercial real estate market in the past 5 years. As long as you can flip it after lease-up, developers will build, especially the merchant guys. That game should be about over although there is still a lot of capital to be placed, it has just repriced the risk, and thus the assets. So, in the long term, the market adjusts. Municipalities don't like dark centers, but this is not entirely the result of natural market selection. A lot of it has to do with the pro-development policies and subsidies of suburban local governments just looking to expand and get tax revenue and build empire - what a shame.
Retail follows rooftops. If poor public policy fosters more growth on the suburban fringe, retailers will vacate centers and follow them, but that's not simply a market process. The answer is not to dream up some penalties to developers that will just inflate rents and then consumer goods, the answer is to eliminate the pro-development subsidies and the lack of externality pricing in the marketplace. It is frustrating to watch - bad policy is just begetting more bad policy as a response. This isn't a market failure, but potential responses to government failures.