Been shopping recently? Done a drive by of the local strip malls? I did the other night, when we were looking for an anime/manga store my daughter likes to go to in one of the more highly commercialized districts of our city. She couldn’t remember exactly where it was (okay, we were lost) but until we did find it, what struck me was the number of vacant buildings and storefronts, some still with the old logos of the stores that had recently been in business there tattooed on their facades, but many others just shockingly bare, with signs advertising all the available space.
The largest I saw said that the space for rent had 85,000 square feet available, but there were several others that at one point must have housed large retail establishments, and now lay dead, no cars in the parking lot outside. And this was on a Friday night, a relatively busy shopping evening around here.
Well it seems my midsized metropolitan area (roughly 1 million total people) is not an outlier, as the statisticians like to call them. The problem of retail vacancies is a growing one all across the country as many stores downsize or simply go out of business altogether:
According to Reis Inc., retail vacancy rates jumped considerably during the second quarter and its metrics for neighborhood and community centers and for regional malls each hit new highs.
For neighborhood and community centers, net absorption for the quarter amounted to negative 7.9 million square feet—greater than the negative absorption for all four quarters of 2008 combined. The figure was down only slightly from the 8.1 million square feet of negative absorption posted in the first quarter. The vacancy rate jumped to 10.0 percent—the highest level since 1992. […]
On the regional mall front, the vacancy rate hit 8.4 percent—the highest figure since Reis began tracking regional malls in 2000.
Even the wealthiest cities in America are not immune. Here’s a story from the New York Times today describing the effect of greater vacancies in retail space in Manhattan:
[A]s New Yorkers have drastically cut back, the shops that line the streets, from chain outlets to family-run shops, have started to disappear.
The storefront vacancy rate in Manhattan is now at its highest point since the early 1990s — an estimated 6.5 percent — and is expected to exceed 10 percent by the middle of next year, according to data gathered by Marcus & Millichap Research Services, a national real estate investment brokerage based in Encino, Calif. […]
“I’ve never seen such an across-the-board problem,” said Lorraine Nadel, a lawyer who has represented tenants and landlords for 18 years. “Store owners can’t pay their rent, and they can’t keep their businesses going.” […]
The outlook is even worse in other boroughs. Hessam Nadji, managing director of research services at Marcus & Millichap, estimates that vacancy rates in Brooklyn and Queens, currently at 7 to 10 percent, will rise to 12 to 15 percent by year’s end. He said some neighborhoods have been ravaged by vacancy rates of 25 to 40 percent.
We’ve all read the stories of residential developments that have turned into ghost communities of empty homes as foreclosures mounted and many homeowners simply walked away from their mortgages. Now the second wave of the Great Real Estate Abandonment is upon us. How many lives have been ruined, and how many more will be because Wall Street played casino games with the US real estate market? Who can say, but the more small businesses that shutter their doors, the more small business bankruptcies, the more employees let go, the longer the pain will be felt, no matter how much money Exxon Mobil and Goldman Sachs rake in. Wall Street was saved for the “Greed is Good” crowd but they don’t seem inclined to help save the rest of the country. But then again, as they would tell you themselves, that’s not their job. Their job is to make their own bottom line look better not improve the health of the national economy, and when the government gave them money to save their industry that’s exactly what they did:
Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government’s financial rescue program.
The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks. […]
Officials said the program intended to increase the capital reserves of healthy banks, allowing them to make more loans. From the beginning, however, the government invested in troubled banks — most prominently Citigroup — that had publicly announced intentions to reduce lending.
The government has also used the money to encourage mergers, such as Bank of America’s acquisition of Merrill Lynch and PNC’s deal for National City.[…]
… Banks were asked to describe how they used the money, but they were not asked to break down the amounts.
One response, which the report described as typical, said the money had been used “to make loans to credit worthy customers, and to facilitate resolution of problem assets on our books.”
Yeah, bet there’s been a whole lot of facilitating going on. Just ask Goldman Sachs. But money that has found its way into the hands of real people to keep this economy afloat? Hey, don’t you know that to a lot of banks real people, like the ones who operate small businesses or hold mortgages, are just “problem assets” these days? And boy howdy, are we being resolved.
If you could go back to before the Reagan era the business sections had small, local businesses. For ex, little sandwich shops were pushed out of business by the Subways and Quiznos of the world.
If real healthcare reform is pushed, every little business would be on equal footing with big chains as far as healthcare is concerned.
Of course, it depends on whether or not the economy turns around and money gets to us down here at the bottom, but if it does the little, local shops can fill in those vacancies, like the little mammals found ecological niches after the meteor hit and the dinosaurs died.
Meh. My Fiance can’t eat Gluten and it’s hard as hell finding local places that are even aware of it where we live.
Anyhow: http://deadmalls.com/ a classic of the internet!
2nd me on that. And one gets tired of ordering the BLT hold the bread. Kinda takes the fun right out of it. Did you know that the celiac rate is now more than 1/300? Most people just don’t know they’re intolerant of wheat
We made the largest wealth transfer in human history from the poor and middle class to the super-rich, with no real strings attached. Did anyone expect things to turn out differently, and if so, why?
Those who siphoned off the wealth want to re-inflate the bubble, but there are no more suds in the water. When we build up the economy (which means empowering the middle class, not propping up Wall St), the financial system needs to be regulated to mitigate the inherent bubble and bust tendency of the capitalist system. Some of these regulations were put in place post Great Depression but where slowly taken away and we are living the results right now.
So the answer to your question is that those who followed the New Deal mindset knew exactly what would happen. Those who followed the Milton Friedman/Ronald Reagan, mindset expected the bubble to stretch out forever. THey are looking for ways to shift the blame away from from their failed ideology.
in addition to outright vacancies, rental rates have dropped almost 50% in NYC:
http://www.calculatedriskblog.com/2009/07/manhattan-office-vacancy-rate-increases.html
Seems like this could point to opportunity for some small businesses.
I’m going to go out on a limb here and say that the mall shops have always been a resource for kids looking for their first job, single moms getting back into the job market and ok paying part time jobs. To see that group of people out of work and probably with less chance of getting a job than other segments is truly frightening. It all is.
Most big banks are Zombie banks having related 0% money from the tax payer. But like mentioned above, no strings attached-money to a bank is like giving a 15 year-old $100 dollars to spend and hope s/he will use some of the money to pay the gas bill. Not likely to happen
Article on dying malls: http://finance.yahoo.com/news/Americas-Most-Endangered-usnews-1952033275.html?x=0&.v=1
There has to be some sort of arcane logic to building new office and retail space when similar buildings within a few hundred feet stand vacant. I too live in a major metro area, a state capital with about 1.2 million residents. Wherever you drive you see vacant retail and office space. Much of it is in somewhat new buildings that certainly don’t present tenant objections in terms of condition. Some of it is in newly finished yet unoccupied structures. In those same areas is new construction, lots of it on multiple buildings, meant to house the very same types of businesses that left existing commercial stock nearby. What gives? Why all the construction? Is it a tax dodge or something else? Any commercial real estate experts out there?
It’s all about time. Projects are set in stone long before the first concrete is poured. If the financing holds up, developers are going to take advantage of it and hope for the best. If you look at it as a monolithic entity, building in this economy doesn’t make sense. If you look at it as a single developer working on a single project, it does. Real estate development is always based on future prospects, not present conditions. That’s why rental buildings never sell at a price where the mortgage can be paid off by current rent collection (though there may be major exceptions to that just now).
OK, so contracts are signed. Is there a mechanism wherein a bank rep tours the city and decides they’re funding a helluva lot of buildings that will certainly stand vacant for months or years? What prospect do banks have for repayment of various loans when the owner of the building goes broke for lack of paying tenants? Or have the banks sold the loans? And if they have who the hell is doing due diligence as that buyer? Somebody somewhere in the chain of construction/leasing/owning/lending/mamaging has to be slowly going broke when multiple 5 story buildings half the size of a football field stand empty for 2-3 years.
The banks make their money selling off loan portfolios. Until very recently, at least, outfits like Moodies, S&P, etc., were rating such paper at the highest levels. On the developer side, large projects are generally set up as separate corporations. If they go bankrupt the exposure isn’t that great for the developer. And realistically, if seen as long-term (decades) plays, many such investments probably have a fair chance of better returns than the current alternatives.
Plus, if it’s a big new development at a new site, there’s a good chance that the state/county/city guaranteed or subsidized some of the risk in order to lure the developers in.
Then there’s this new behemoth, which is having lots of trouble filling its space. Timing is everything.
We’re living through a once-in-a-lifetime opportunity for the Dems win back the small business people. So far I don’t see them making the effort.
In the House Healthcare reform bill there is a something for small business:
FOR SMALL EMPLOYERS
Provides access to the new Health Insurance Exchange, giving them the benefits of large-group rates
normally enjoyed only by large employers, lower administrative costs, greater transparency, and the ability
to offer greater choice of plans to their employees.
Reforms rating rules so that small employers no longer pay higher premiums if they employ a sicker
workforce.
ADVANTAGES FOR SMALL BUSINESSES
Health Insurance Exchange is opened to small employers first (those with 10 or fewer employees in the first year,
and 20 or fewer in the second year) and to larger employers over time.
Offers opportunity to small employers through the Exchange to provide their employees with broad choices for
coverage and to be able to eliminate the administrative costs of maintaining their own health plan contracts.
Please read the whole thing at http://edlabor.house.gov/blog/2009/07/americas-affordable-health-choices-act.shtml
Assures costs of plans for small businesses will be stabilized.
Provides a tax credit to assist small employers who want to offer coverage.
Exempts small businesses from the “Pay-or-Play” requirements (see below) and phases in graduated rates
as payroll increases.
Please read the whole thing at http://edlabor.house.gov/blog/2009/07/americas-affordable-health-choices-act.shtml
Small businesses are struggling. Customers are slower paying outstanding invoices. Lines of credit are being cut off, often with no reason, even if companies have always made reliable payments. This crimps cash flow, and means those small businesses aren’t spending on anything they can get by without. Sometimes they have do without necessary upgrades in equipment, keep running old computers and old software, not replace something that’s broken. Sometimes they have to close offices or stores, not fill newly vacant positions, or lay people off.
Billions of dollars from the TARP never made it past the next quarter stockholder reports — and bonuses for Wall Street. That money never made it into the economy — why would the banks do that, when they can reap far higher profits in other ways?
And this isn’t just about banks not lending money.
This is about consumers stopping spending.
I work above a complex that used to house a Macy’s, an Ann Taylor store, a shoe store, a couple of gift stores, and a men’s clothing store, and a Godiva chocolate.
This Macy’s closed. (There’s another a couple of blocks away, so that wasn’t a huge surprise.) But without Macys, the business for the other stores dried up. Ann Tayloy is gone. Godiva is gone. one of the gift stores is gone. The men’s store says ‘going out of business.’ The shoe store doesn’t say that, but the inventory has dramatically dried up. Most of the shop is empty. I think they’ll be gone soon too.
And that’s just where I work. If I go to malls in the area, it looks similar. And where stores are still open, they are far from busy.
I think we need to rethink the way we pay people in this country. There’s too much money at the top and too little money at the bottom. And too few people at the top to support a robust economy.
indeed, in fact the wsj had an article about the growing disparity between the top and bottom earners. it’s primarily regarding the social security system impacts, but it’s applicable to the economy overall.
as l don’t have a wsj subscription, the link is to the diary and discussion at ET…wsj says pay inequality bankrupting the system
there’re some very good comments as well.