From James Quinn at Seeking Alpha:
There are at least 1.1 million retail stores in the United States according to the Census Bureau. There are approximately 1,100 malls in the United States, not counting thousands of strip centers. These numbers will be considerably lower by 2011…
There is no pent-up demand. If the phrase unpent-up demand existed, it would apply today. Americans have bought everything they’ve desired for the last twenty years. There is no pent-up demand if you own 20 pairs of jeans and 60 pairs of shoes. The over-spending and over-leverage will take a decade to unwind…
According to the ICSC, about 150,000 stores are anticipated to shut down in 2009, which adds to the 150,000 that closed in 2008 and 135,000 in 2007. Normally, 110,000 to 125,000 new stores open per year. At least 700,000 retail jobs will be lost. The opening of new stores will grind to a halt in 2009…
By 2011, at least 15% of the existing retail base will have gone to retail heaven. With the amount of vacant stores likely to reach in excess of 200,000 and vacancy rates of new malls already at 28%, there will be no need for the construction of new stores for many years…
As retailers go bankrupt, vacancy rates have reached 9.4% for shopping centers, according to CoStar Group. With virtually no demand, rental income is plunging. With cap rates eroding and operating expenses going up, a perfect storm will hit mall developers in 2009.
I found this in the comments.
From the author in the comments:
Municipalities will get hammered if malls go dark. The local governments assumed that the tax revenue from wage taxes and housing sales would continue permanently. That tax revenue is drying up. This is why municipal bonds have sold off so badly. The market sees municipal bankruptcies soaring.
In its latest quarter, Belk lost $23.5 million. That more than tripled the $6.9 million loss of a year earlier. Still, Pernotto says the company’s financial health is sound. “We’ve been through all of this before,” he says of the 121-year-old chain.
The CMBS market is dead:
CMBS issuance plummeted 95 percent in 2008 to $12.1 billion. There has been no CMBS issuance since June, Jones Lang said.
CDOs are dead, too:
According to the CMSA, there have not been any CDOs issued since June 2008…
Given that the current economic environment is much worse than during the S&L crisis, it is not hard to understand why the CMBS market is pricing for a 30% default rate. Since the banks own a higher percentage of commercial mortgages, the resulting losses could be larger than the so-called “sub-prime” losses. So while Congress debates whether or not the TARP was put to good use, the $400 billion commercial mortgage time bomb is ticking.
Hum… Fewer big box retailers… Well, looks like one good thing will come as a result of the Greater Depression.
Too bad so many of America’s working class will fall as well.
The key part for me was only low price items would survive. I read that as more Wal Mart. The challenge is to create a product suitable for Bentonville.
Not mall related, but 3×5 LEASE AVAILABLE signs along Battleground are beginning to sprout up. I counted four of them between Martinsville and Oakcrest yesterday, one with several vacant slots in a new building where Pizza Inn or the old Wendy’s used to sit.
Yeah, Walmart seems almost immune. How will the economy work when Walmart becomes America’s only employer? And will that be democracy?
Democracy made in China.
Hugh, I really don’t understand developers who continue building in this economy.
Folks, at some point, if we are to survive, we must compete effectively with the Chinese. We’ve achieved the first step – adoption of a communist government.
Ouch! Damned Mountain Dew sinus wash;)
People continue to build and remain optimsitic because it’s symptomatic of the end of a mania. This is most noticeable in market ticks. The highest volume days are still the up days during rally legs. The herd is holding on with their front teeth to the last remnant of hope in something. Every child in public school was taught to pledge allegiance to a credit-based system, under god, of course. If you throw a serpent into a toddler’s pen or into a cage with a chimp raised in captivity, both will have the instinct to retract. If you place a loaded and cocked firearm into the same confines, both subjects will end up with the barrel of the gun in their mouth. Value by decree(fiat) finance is the firearm in this fable. The more complicated you can make a hoax appear, the more experts you may claim are needed to resolve it. The simple solutions are marginalized for good reason. If we could solve the problem so easily, we wouldn’t need them, would we? Our predisposition to magical thinking will keep people not only building houses, but using the equity as collateral to finance stock purchases, futures trades and even options on futures.
@ Beezle
A friend who moved to be near his dying mom in Tenn. is back visiting here, since mom has passed.
He is a self-employed painter when the market allows. He is optimistic that there are major problems that still aren’t being addressed and it will get nasty.
He has lived in Hawaii before and is on his way back.
He is not prone to magical thinking: I can live on the beach and be warm and fish to eat.