Peter Pays Paul

Retail real estate had a great run up in value and rental rates in the past few years. Fueled by easy consumer credit retailers expanded at a furious pace. This demand spurred development of retail projects across the country.

Now, with consumer spending down and online purchases up, retailers are going under.This decrease in demand for retail space has retail real estate set for a bumpy road in 2009.

Advice for Retail Specialists

The Jacksonville Business Journal has some tips on how to get retail real estate deals done in this tough economic climate from a local ICSC event.

Rent concessions, local government assistance and reduced maintenance costs are going to be the new way to make retail real estate deals stick in 2009, according to panelists at an International Council of Shopping Centers event.

The ICSC Jacksonville Next Generation Program panel discussion on creative deal making strategies attracted nearly 100 young professionals Jan. 22.

Retail real estate pros have to get creative – Jacksonville Business Journal

A Doomsday Forecast

How bad could the situation get? James Quinn at Seeking Alpha has written an article titled Ghost Malls: Coming to Your Town (HT: Transparent Real Estate) that details how bad the situation could get.

The illustration of Old West ghost towns is something that every American can relate to. During the great gold rush of the mid 1800’s in California, Nevada, and Wyoming towns sprung up out of nowhere to support the gold mining efforts of those looking to strike it rich. General stores, bars, hotels, brothels, and jails appeared out of nowhere based on demand from delusional prospectors hoping to hit the jackpot. Thousands of malls emerged throughout suburban America in the last twenty years as delusional shoppers thought they could spend their way to prosperity and achievement. Both delusions will end in the same manner.

James speculates that gone are the days when American consumers attempted to spend their way to prosperity and predicts that this will have a drastic affect on malls.

A permanent psychological change has occurred in American consumers. They have lost $30 trillion in value from their homes and investments in the last few years. No amount of fiscal stimulation will reverse this psychological trauma. The savings rate will increase from 0% to at least 8%.

…

As Americans realize that they don’t “need” a $5 Starbucks latte, IKEA knickknacks, Jimmy Choo shoes, Rolex watches, granite counters, and stainless steel appliances, our mall centric world will end.

Uncertain Future

“Batten down the hatches boys, it’s going to be a wild one.”

Only time will tell how bad the situation will get. If James’ assumptions are true, it could be very bad. If retailers are able to trim their costs and survive, the bottom will be much softer than James predicts.

What are your thoughts? How far down will retail real estate go?