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My local area is getting hit with a tsunami of store and restaurant closings. There usually is some after new years every year but this year its just scary. Fairly new shopping centers that looked thriving a year ago are now so vacant they are barely viable. The bad thing is its going to be difficult for commercial landlords to find new tenants these days, leaving these locations vacant for years, which depresses property values. It would seem that we would have seen more of this in 2008 or 2009 when the economy was supposedly at its worst, but retailers that were able to hang on through the recession are now having to shutter. Its surprising because supposedly spending is up compared to late 2008-early 2009. Is this a delayed effect of the recession or are things actually getting much worse?
Carolina Pavilion is an obvious one. Lost like four restaurants in the last month along with Office Max. That entire corner is completely vacant now. Another one is that shopping center at Providence and Sharon Amity..I forget what its called. So much vacant space there and its a nice center.
Yeah we have alot of vacant commercial space as well. It reminds me of the recession in 1983 or so. There was a lot of vacancies back then as well. It is pretty sad.
Yeah, but around here the price hasn't dropped for commercial space at all. It's still running about $0.16/sq ft.
I would think developers would be willing to lower the rent in these times to keep tenants rather than letting them close with such a low probability that a replacement can be found near-term. Anybody in the commercial real estate market have any thoughts on this?
I would think developers would be willing to lower the rent in these times to keep tenants rather than letting them close with such a low probability that a replacement can be found near-term. Anybody in the commercial real estate market have any thoughts on this?
It all depends on the company, if they are a big corporation odds are the subscribe to efficient markets theory and follow economic models that don't allow for “fat tails.” If that is the case they think that all cycles come back and grow so they would rather kick people out thinking the economy is on the come back.
It all depends on the company, if they are a big corporation odds are the subscribe to efficient markets theory and follow economic models that don't allow for “fat tails.” If that is the case they think that all cycles come back and grow so they would rather kick people out thinking the economy is on the come back.
Huh? This is inaccurate on two levels. Firstly, a prolonged decline in real estate values does not go against efficient market theory. Secondly, the primary reason property owners don't like reducing rents is because the value of the property is directly related to the rents one can extract for it. A property owner may increase their cash-flow by decreasing rents and gaining tenants, but they may make themselves insolvent in the process.
The calculations that single proprietor type businesses do is a bit different what a national chain faces -- once a mom & pop type restaurant uses up all their cash and credit odds are the landlord is going to lock 'em out. The chain might decide losing money at one store for longer time is cheaper than get sued for the lease, taking the hit from bad press, watching stock drop.
Landlords won't just slash rents with no bottom -- they probably have bills to pay as well. If the whole mall is empty they might walk away from it and the lender will come after them, but if even a coupe of tenants are paying rent that is still cash they can use to cover their costs.
Landlords want tenants with decent ability to attract other quality tenants to a mall-- if the diner is vacant maybe they get rent to a Subway franchise, but if there is some struggling lunch place it is not going to benattractive to any national tenants.
The economy overall is hard to measure with retail space -- there is lead time from when leases are signed until new stores open. One the other side the lag between when economy is worst for consumers and when the lack of spending crushes small businesses depends a lot on how "essential" a business is -- whennppaces that sell beer and lotto tickets can't make it that is very different than when nail salons are closing...
Huh? This is inaccurate on two levels. Firstly, a prolonged decline in real estate values does not go against efficient market theory. Secondly, the primary reason property owners don't like reducing rents is because the value of the property is directly related to the rents one can extract for it. A property owner may increase their cash-flow by decreasing rents and gaining tenants, but they may make themselves insolvent in the process.
Most models band the potential declines based on the last 50 years of data.
I am sure your point 2 is true to a point but based on a presentation I recently saw from a major REITs economist, they are banking a return to 2006 very soon.
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Not that simple...
