Overbuilding? Naaah!

We’ve heard both sides of the story for years. Some industry veterans have told us that the US is under retailed. Others have said for a while now that there is way too much product out there.

Well, this Wall Street Journal article strongly supports the later argument. Now that the bottom has dropped out of the lending market and consumer confidence is an oxymoron, it’s not looking so good on the retail development front – especially for larger projects.

The article quotes David Simon saying “there were a lot of projects that shouldn’t have been built,” and it’s not like his firm is exactly quiet on the development front. He predicts a decade of little growth after what the Journal says was an eight-year stretch of one-billion sf undertaken in the top 54 markets.

Have we reached the point of saturation, or are there still communities out there dying for nearby Home Depot-anchored power centers?

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4 Responses to “Overbuilding? Naaah!”


  1. 1 PG September 11, 2008 at 8:54 am

    Rule Number One: If you want to get out of a hole, the first thing you need to do is stop digging!
    Granted, the fact that you still see large retail construction projects is due to the long lead times invilved in planning and constructing large developments. Back when such projects were started, even if there were dark clouds on the horizon, the thought was that even if we were in for a couple of rough years, by the time this project comes on line, the down cycle will be nearly over and we will perfectly positioned to take advantage of the coming recovery. The problem is, this down cycle has lasted longer than a couple of years, and we will probably not see any real recovery until 2010. I can guarantee you that there are very few projects of this scale in the planning stages today. Another factor is demographics-an aging population that does need so much “stuff”, ( I myself have accumulated more crap than I care to admitand am in the process of shedding a lot of stuff) and and a younger generation coming online that has little money to spend on anything beyond the basics. Oh, and don’t forget e-tail. As always, there may be a few pockets in the US that are “under-stored”, and the main driver for retail development in the future may be tied into following the geographical shift in population. We will be replacing older centers in dying areas with new centers in areas of population growth..

  2. 2 James September 11, 2008 at 10:54 am

    A lot of the existing space that is currently counted is functionally and socially obsolete. It will get reconcepted and recycled, some of it will not come back as retail space at all. Some of the strip centers that have lost their anchor and are now into second or even third generation users just won’t make it on the next cycle. The internet, new City planning, Mass transit, high fuel costs and other societal forces are changing the needs and desires of communities and retailers are responding. Personally I am predicting an increase in smaller to mid-size stores that can fit into dense neighborhoods with a shift away from huge boxes that you have to drive miles to get to. I already do a good deal of my shopping on line instead of visiting a store, with internet retailers like Zappos available there is no need to visit a shoe store that afterall has a limited selection by comparison. I am also expecting many stores to convert their stock to a large supply ( and variety)of “sample” merchandise that a customer can see and feel, and try on, but the actual item will be drop shipped to their home the next day.

  3. 3 gary September 12, 2008 at 12:29 pm

    Rule number one, real estate development is local. Rule number two, national, or macro square foot metrics, especially averages, don’t provide solid guidance. Rule number three, and here’s where financing, liquidity, opportunistic developer wherewithal and savvy tenant participation are key, local real estate development opportunities, regardless of product (retail, office, warehouse, hotel etc.), should be a function of solid research at the delineated trade area or market level.

  4. 4 Glenn Sweeney September 16, 2008 at 5:16 pm

    Here in north metro Atlanta, there seems to be a surplus of new retail shopping centers being delivered to market, some without a single committed tenant!

    The industrial market is relatively strong, and the office market is doing fairly well.

    Glenn Sweeney
    678-665-7857
    Crye-Leike Commercial
    http://www.georgiacommercialrealestatepartners.com
    http://www.glennsweeney.com


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