Centers Show Strong Results

"Conditions are good; they may even be very good," said Charles Grossman, speaking on the state of the shopping center industry at Boston's Seaport Hotel Tuesday.

Improving economic conditions nationwide, including a 5.8%increase in disposable income, is driving strong sales and caused theretail market to surpass other segments of the economy, Grossman said,adding that it appears that trend will continue through 2005.

Overall retail earnings were up 17% in 2004, a ICSC studyshowed, with that number up 6.7% in the first quarter of 2004. Shopping mall retailers saw the biggest increase with earnings of 18% last year and 3.6% in the first quarter of this year. Open-air properties, excluding lifestyle centers, also fared well, earning a 15.3% increase in 2004 and 7.5% in the first quarter of 2005.

Drug store retailers led the pack when in came to increased sales, with a 5% uptick in sales figures for the year, Grossman said. Wholesalers also saw sales improve by 4.9% while discounters saw a 3.6% increase, followed by a 2% increase for footwear retailers and a 1.5% hike in apparel sales. The only loser in the sales race were furniture retailers, whose sales drop by 6.3%, Grossman said.

There are other good economic signs as well. Retail bankruptcies declined since 2003, with that trend continuing through the first six months of this year. Although mergers and acquisitions continue among retailers, Grossman said the process has provided opportunities for other businesses to move into space that was freed up by vacating tenants.

European retail names are also gaining a foothold in the US market, he said, while established names continue to push for further expansion, particularly in anchor stores left dark by the spate of recent retail takeovers. The quick lease up by cash worthy tenants, he noted, has kept the overall occupancy rate at the nation's malls at a solid 96%.

Lifestyle centers, once considered a fad, are popping up allover the place with 150 of the concept shopping centers already builtand more on the way, he said. The lifestyle center concept is even being played out at older regional malls and power centers as developers turn long-vacant big-box space into open air marketplaces.

But even with a 3.6% growth predicted for the nation's grossdomestic product, Grossman had some cautionary words for retailers. The trend by manufacturers to seek cheaper labor in other countries could have a deflationary impact on retailers as prices decline due to lower production costs. And rising gas prices, which has not yet had asubstantial effect on retail spending, could throw a wildcard into thespending mix.

Yet Grossman remains optimistic. "It will be a satisfactory year," he said, "if not a vintage one."