It’s no news that retail real estate is in a downward spiral. Itstarted slowly 10 to 15 years ago as timed constrained shopperswere getting tired of getting stuck in traffic and reduced theirmall trips. E-commerce accelerated the trend. Efforts at trying tomake mall shopping more experiential have fallen flat.
And stuffing brand stores into high-street urban locations hasrun its course too—rents are dropping along the most covetedshopping strips in the country. We’re at the top of the economiccycle and the retail real estate tailspin is savaging NCREIFperformance—the core index delivered only a 1% return in the secondquarter. So what happens in a recession when chain storesinevitably retrench further? The number of closings could beunprecedented.
All the ongoing disintermediation raises a crucial question. Caninstitutions still consider bricks-and-mortar retail investmentscore real estate? Or have shopping centers turned into a much toovolatile, high-credit risk component unable to reliably supportincome-producing strategies with tenants vulnerable to going bellyup or reducing their footprints at any time in the economic cycle.Even the once-seemingly impregnable fortress malls catch a whiff ofthe unimaginable—losing brand names, cutting rents, shrinking storeformats, looking for non-traditional tenants. In the 1960s, whothought Woolworths Five and Dime would ever disappear? Now anchordepartment stores—whose ranks have been shrinking for severaldecades–really look like dinosaurs and even once seeminglyinsulated luxury purveyors, the province of the one percent, gobankrupt. At strip centers local and regional grocers have beeneviscerated by Wal-Mart, Target and Trader Joes, among othernational behemoths. And in cities, do we really need any morecorner drug stores or Starbucks?
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