Mike Shedlock http://globaleconomicanalysis.blogspot.com/ with an excellent post that is as clear as day for anyone with their eyes open to reality. Have you driven by a strip mall lately? The new hot retailers are: Vacancy, For Lease, and Space Available. Strip malls are dying across the country. There are only so many karate studios, dry cleaners, pizza joints and Chinese takeouts to go around.
I walked into the Plymouth Meeting Mall a few weeks ago. I hadn’t stepped foot in the mall for a couple years. The IKEA headquarters was within the mall complex, so I frequented this mall for 14 years in my previous life. When I worked there, the mall was always 95% leased out. It was a decent middle level mall. It had a Strawbridge & Clothier anchor and a Hess anchor. Now it has Macy’s and Boscovs. In between these two anchors it has 50% vacant storefronts. It is virtually a ghost mall. We walked into it on Saturday evening and there were no shoppers.
Mike Shedlock is right. Why go to the mall and spend money on gas when you can get it cheaper on Amazon while sitting at home? The mall based world of the US is dead man walking. One small little problem. No one told the banks who made the loans to finance these white whales. The commercial real estate loans on their books go down in value every day. They pretend they will be paid. The mall owners pretend that tenants will pay them rent. The tenants pretend that customers will go to the mall and buy more useless shit. All so we can pretend that our country isn’t headed straight into the shitter.
EXTEND & PRETEND IS YOUR FRIEND.
Vibrant to Vacant: Mall Vacancies Highest in 11 Years; Online Retail Sales Hit 12%
Online retail sales keep climbing, big box retailers keep wondering what to do with all their space, and small stores struggle to survive at all. As a result of that nasty brew, Malls Face Surge in Vacancies.
Mall vacancies hit their highest level in at least 11 years in the first quarter, new figures from real-estate research company Reis Inc. showed. In the top 80 U.S. markets, the average vacancy rate was 9.1%, up from 8.7%.
The outlook is especially bad for strip malls and other neighborhood shopping centers. Their vacancy rate is expected to top 11.1% later this year, up from 10.9%, Reis predicts. That would be the highest level since 1990.
In the Denver suburb of Westminster, Colo., city officials are negotiating to buy and raze the 34-year-old Westminster Mall and redevelop it into offices, homes and stores. The 1.2-million-square-foot mall, once home to a Macy’s, Trail Dust Steak House and Mervyn’s, has seen its sales-tax generation plummet in recent years, to $1.5 million last year from $8.5 million in 2000, city officials say.
The mall went “from a place that was once vibrant to something that is now virtually vacant.”
Shopping Center Economic Model
In 2005, the mall-vacancy rate hit a low of 5.1%. For strip centers the boom-time low vacancy rate was 6.7% that same year.
On April 18, 2008 I wrote Shopping Center Economic Model Is History
Lease rates are going to sink, vacancies are going to soar, and the oncoming supply of mall space with no tenants is going to bankrupt many regional banks that funded such construction. The shopping center economic model will soon be history.
Bank Failures
Inquiring minds may be interested in a recap of Bank failures in the United States 2008–2011
2008: 25
2009: 140
2010: 157
2011: 26
Only So Many Shoppers
A couple weeks ago I was contacted by a reporter in Las Vegas about a new mall going up in the city. I told him the obvious: There are only so many shoppers.
What good can a new mall do? During construction it will provide a few jobs. Then what? Then instead of shopping at the old mall people start shopping at the new mall. No one buys any more stuff.
Shopping Center Dynamics
Ironically, is quite common for city councils to give huge tax breaks to new businesses that “create jobs”.
Mayors love ribbon-cutting events like mall openings. Then a few years down the road if not sooner, everyone wonders where the jobs are and why expected sales tax revenues did not materialize.
There is no need to wonder. The answer should be easy to spot in all the vacant strip-malls and closed stores elsewhere.
To be sure, there are some city revivals, but those come at the expense of shoppers staying local rather than driving to the nearest town . The reverse also happens. People travel to the new mall in the neighboring city rather than shop local.
This dynamic ensures that malls and strip-malls go up everywhere until there is a crash, which is precisely where we are now.
Online Sales Compound the Mall Problem
A few years back online sales were about 6% of total sales. Online sales hit 12% this past Christmas. State and local governments are more than a bit upset about the lost sales tax revenue.
Malls and big box retailers are upset too. Everyone hates Amazon, except Amazon customers.
Big box retailers have a glut of space and many are starting to shrink the number of items they carry. However, every item they do not carry that someone wants to buy, is another item someone will decide to buy online.
Yet, every online purchase is one less trip and fewer miles on the car. Thus online shopping also impacts gasoline sales, gasoline tax collection, and car maintenance.
Demographics
The population is getting older. In advanced years, much of what people buy is health- or food-related, not gadget-related or travel-related.
A certain set of people never became comfortable with the internet and internet shopping. Younger generations have no aversion to buying online or not buying at all.
Those fresh out of college are deep in debt and struggle to pay that debt off.
As boomers head into retirement many are scared half to death about insufficient savings. Their peak shopping years are now well behind them.
One bright spot lately has been a revival in luxury items. However, that has largely been a result of the stock market revival. Should there be a sustained relapse in the stock market, luxury sales will take another dive as well.
In light of the above, I see no sustainable revival in the shopping center economic model for years to come.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
KaD says:
Strip malls are doing as poorly or worse it seems. Not that I’m terribly surprised by any of this.
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7th April 2011 at 1:00 pm
Yojimbo says:
Once again, Reverse Engineer is far, far ahead of the curve here. Let’s assume 7 million more people will die in the coming collapse.
That’s a lot of ghosts. And where will ghosts go the shop? Ghost malls!
And what will they use to shop? Fiat currency. [Thomas Jefferson - "Paper is poverty. It is not money, it is only the ghost of money itself"]
So we will have gone full circle, and a new economy will have been born – the ghost economy.
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7th April 2011 at 1:12 pm
Dirty Billy says:
While you’re right overall, the occupancy for Plymouth Meeting Mall was 81% for non-anchors as of 12/31/11 (88% in you include them). Now that is obviously influenced by the holiday season and once the March numbers come out you’ll get a better sense of their renewals.
Malls are dying a slow death but 50% in that particular mall is pretty low. The more important question is why you were in a mall while March Madness games were on?
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7th April 2011 at 1:20 pm
Administrator says:
Dirty Billy
Does the 81% include the restaurants on the pads outside the mall?
The vacancy rate reported by PREIT is highly suspect based upon my knowledge of the highly suspect people who worked there.
The number of vacant storefronts far exceeded 19%. I’m sure they are able to manipulate their figures to make it seem like things are rosier than is true. I’ll stop by tonight on the way home from work and count the vacancies versus the occupied.
I didn’t need to watch the games. I already knew who would win. Haven’t you checked the final standings? I believe you were at the rear of the pack.
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7th April 2011 at 1:28 pm
StuckInNJ says:
Anectdotal observations of our consumerism. We bought a lot of shit this year … ALL of it, though, to replace broken or severely worn out products.
Flat Screen TV purchase: Purchased from Best Buy. The store was very crowded. All the cash registers were manned by employees. Each had a line several people deep.
Tempurpedic Mattress: Purchased from SleepEZ. Made two visits, total about 4 hours spent in the store. Empty. Saw maybe 4 or 5 other shoppers. No one else bought anything.
Kitchen Appliances: Purchased from PC Richard & Sons. Very few people in the store. We were swarmed by three different salespeople. Discounted sales signs everywhere. When we finally settled on the salesperson we wanted, it was clear he was desperate for a sale.
Car: Purchased at Planet Honda. Got there around noon and the place was a zoo. People everywhere. At least 20+ salesmen … every single one of them talking to a customer. By the time we left, around 4PM, they were actually calling numbers!! Seriously. Our salesman said he sells about 60-80 cars per month. He said even their average salesmen sell 30+ cars per month … or they get fired. Ms Freud and I were quite amazed by it all. One would hardly suspect we are in deep doodoo … based only on the Honda experience.
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7th April 2011 at 1:58 pm
marissa says:
American shopping malls are depressing. They deserve to die.
I went to a local shopping mall her in my city about 3 years ago. The canned mood music, strategically placed potted plants, shitty food court, and mundane overpriced crapt were all so dreary I sprinted out the nearest exit and sat down on the curb and cried. I’m pretty sure this is not the retail shopping experience that rapacious property developers are aiming for.
Blek. Haven’t been back since.
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7th April 2011 at 2:23 pm
Dirty Billy says:
Wait, didn’t Pitt win the Championship? Oh….
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7th April 2011 at 2:42 pm
Colma Rising says:
Around here, at Tanforan Mall, you can’t find parking. The place is packed and they recently opened a Hooters (yes, asian girls CAN have a fabulous rack). Around the corner at Serramonte Mall, it does seem to be half full but that half is packed…
My communist professor said that the Phillipino culture is far more consumeristic than most. I tend to agree, except he thinks they are dupes. I think they’re awesome… adobo and lumpia for life!
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7th April 2011 at 2:47 pm
The Watchdog says:
XRT (retail ETF) rallying today. Up 25% in a year. What a joke.
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7th April 2011 at 3:06 pm
Imaginarium says:
Malls will become the new homeless shelters. Completely self contained, with food courts to accept food stamps.
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7th April 2011 at 3:20 pm
Cynical30 says:
Here are some fun facts according to CoStar:
Overall national vacancy rate for US retail: 7.2% at the end of Q4 2010, a 0.1% decrease from the previous quarter.
There is a total of 25.6M SF under construction right now, with the majority of that being in Northern NJ (3.5M SF) and Philly (1.6M).
Total Mall Market statistics: 5.8% vacancy nationally, with the majority of ugly double digit vacancies in tertiary markets for now.
Power Centers (i.e. Walmart anchored monstrosities): 6.9% national vacancy; some higher numbers in major markets like Chicago and Atlanta, but it’s still mostly tertiary markets.
Shopping Center Markets: starting to get ugly. 10.8% nat’l vacancy, double-digitastic up and down the list through all markets.
All in retail is back around 2007ish levels. Malls are at a 3 year high vacancy (3.1% 2007 Q1 – 5.7% 2010 Q4) and have held right around 6% since Q3 2009.
Power Center vacancy is actually down (probably backfilling some Circuit City space) as it peaked in Q1 2009 when CCity went dying cockroach. BTW I used to work at that monkey shit show of a company when I was in school and hated those motherfuckers. It was like watching your worst enemy get hit by a train. Fan-fucking-tastic.
Again, Shopping Senters 2007 Q1 were at 8.1% vacancy and have topped off around 11% since the end of 2009.
Of course all this being said, RENTS ARE WAY THE FUCK OFF their 2007 peak!!! Good luck refinancing at unrealistic levels you speculative fucks. Oh yeah, plus to put the slow vomit-puking of nationwide vacancy into perspective: Shopping Centers make up 35% of the entire US retail market. This being your shitty strip malls, grocery anchored centers, etc. Basically anything that’s not huge and offers you a Walmart or Target… AKA main street USA. Looks like the big boxes are fine for the time being, until $8/gallon gas.
BTW, if it wasn’t for artificially low rates this sector would have gone the way of the dodo. Artificailly low refinance rates are allowing a lot of these gents to refinance their overvalued loans and not take as much of a haircut on their bad bets as they should. It must be awesome to be a wealthy commercial real estate investor! Benny Bernank’s got your back.
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7th April 2011 at 3:31 pm
Dave says:
We just had a small mall complex bought at auction by Wells Fargo. They paid 10 million dollars for the property. The original mortgage for 24 million was held by………………………………………………………….
wait for it………………………………………………………………………………
WELLS FARGO!
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7th April 2011 at 4:33 pm
Hope@ZeroKelvin says:
The farther you are from a nice surburban neighborhood, the emptier these malls are, in my experience.
I live in a small town 15 miles east of Lake Conroe and have watched a slow “die back” of the malls as you go closer into Conroe itself. Granted we don’t have monster malls here, just 6-7 shops on a strip.
The body count so far as you go from my place into Conroe, my experience.
4 nail salons
2 sandwich shops (both affilitated with major sandwhich shop chains)
1 dentist
1 vet clinic
3 fairly decent restuarants
1 UPS store
1 Verizon
Still empty.
OOOOOooooooOOOOOOOoooooOOOOOOOOOOooooooooooOOOOOOOOOooooooo
(That is the wind blowing through the stores and the bank accounts of the owners.)
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7th April 2011 at 4:53 pm
Hope@ZeroKelvin says:
(oops, I meant WEST of Lake Conroe, sorry)
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7th April 2011 at 4:53 pm
Administrator says:
We had a really nice strip center about 3 miles from my house when we moved into the area in 1995. It had a Genuardi grocery store as the major anchor. It had a nice size Sears Hardware store. It had a Blockbuster. It had a locally run clothing store. It had a few fast food restaurants. It had a really nice indoor play center where Avalon took the kids to blow off steam in the winter.
Today, all that is left are the fast food joints. Everthing else is closed. Safeway bought Genuardis and ran it into the ground. Eddie Lampert bought Sears and ran it into the ground. Blockbuster ran itself into the ground. This is an upper middle class area with plenty of disposable income and still this is a ghost strip center.
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7th April 2011 at 5:01 pm
Hope@ZeroKelvin says:
@Admin: Sign of the times, my friend. Not only has our manufacturing base been hollowed out, now our consumer base also.
But hey! Here is the new growth industry in America:
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7th April 2011 at 5:13 pm
Colma Rising says:
Funny, HZK…
My friend puts up “Space Available” signs… works just about every day too.
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7th April 2011 at 5:55 pm
ragman says:
I haven’t been in one of these places in years. No gun shops, no coin shops, no surplus stores. They all suck. More shit we don’t need purchased wif money we don’t have.
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7th April 2011 at 7:40 pm
Welshman says:
Colma,
Killing time at the mall on 19th Ave recently, I noticed the Rack on Asian Ladies. Was a BIG change from 30 years ago, when I worked in THE CITY.
Hope,
Thank you for changing that East to West, I was lost for a moment. Missed your posts of late.
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7th April 2011 at 6:26 am
SoundOfSilence says:
Dirty Billy
http://www.zerohedge.com/article/mall-vacancies-highest-11-years-strip-malls-vacancy-rate-highest-1990
There you have it.
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7th April 2011 at 2:09 pm
Kaylin says:
Our mall (if you can still call it that) has a Senior Center, a church, a gym, and a large community mtg room. That’s about it. Lots of empty space. I call it the red neck convention center, since we don’t have a real one in our town (not that I am complaining about that bc they are expensive to build and are a money suck for the residents) and that is were all the old people go to walk and talk.
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7th April 2011 at 2:57 pm