Wednesday, October 10, 2007

Speaking of Recession Related Issues – Strip-Mall Vacancies are Up

In keeping with the continuing debate about the future growth of the US economy, strip mall vacancies are up marginally, indicated that the consumer spending is declining. From the WSJ:

U.S. strip-mall vacancies only inched up in the third quarter, but still hit a 5½-year high, spurring concerns about cutbacks in consumer spending. Rentals of retail space in weak housing markets are getting hit disproportionately hard, as consumers rein in their purchases. . . .

. . . . "There's uncertainty in the market, and there's uncertainty on the part of retailers as to how consumers will respond to the changing conditions," says Sam Chandan, chief economist at Reis Inc., a New York real-estate research firm.

The strip-mall vacancy rate rose to 7.4% in the third quarter, from 7.3% in the second quarter and 7% in the year-earlier period. Along with the first quarter of 2002, when the vacancy rate was also 7.4%, that level was the highest in 11 years, according to a survey of 76 U.S. retail markets by Reis.

In states such as Florida and California, where housing markets are among the weakest in the country, retail fundamentals have markedly softened in some places. . . . Vacancies have also risen and rent growth slowed in weak housing markets such as Miami, Tampa, Phoenix, Orange County, Calif., and San Bernardino/Riverside, Calif.

Retail in most of the rest of the country is still solid. "Between the coasts, we're not seeing as much of an impact, because that's not where a lot of the [housing] prices were inflated," says Greg Maloney, chief executive of retail at Jones Lang LaSalle, a Chicago-based commercial real-estate firm. . . .

. . . . Shopping-mall vacancies have shown no impact from the housing problems yet. Because of malls' long lease terms, economic problems typically take 18 months to 24 months to show up in vacancies and rents. The vacancy rate for shopping malls fell to 5.5% in the third quarter from 5.6% in the second, and rents rose 0.7%, according to Reis. Strip malls see the effects sooner, but ultimately could be more stable than shopping malls, which depend more on discretionary spending.

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