ORLANDO-Reduced demand for space and lower consumer spending are taking back seats as reasons for the retail industry’s current softening posture, a new report by the Orlando office of Trammell Crow Co. indicates.

“The biggest threat to retail, even more significant than softening demand for space, is the entry of big-box retailers such as Wal-Mart, Target and Costco into the grocery business,” says Crow’s John M. Crossman, senior vice president, Florida retail services division, who authored the report.

“The reason is simple,” Crossman says. “The amount of money that people spend on groceries tends to decelerate much more slowly than money spent on luxury items.”

He says, “Since competition in the grocery business is beginning to intensify, this stable retail asset is finding itself more and more at risk.” But centers in strong demographic locations “should remain fairly well insulated,” he told 2,000 attendees at the International Council of Shopping Centers’ three-day gathering that ended Aug. 14 at the Hyatt Regency Grand Cypress Resort.

Grocery store sales have beaten inflation for 15 of the last 20 years, “regardless of where the nation was in the economic cycle,” Crossman says.

On the investment opportunity side, the Crow executive sees fortress malls and grocery-anchored community centers as the best investment bets today.

“Power centers have been overbuilt and are struggling, falling victim to e-commerce,” shopping center industry members were told. “Electronic retail has seen increased music, book and computer sales, which account for the core of power center sales. As a result, lenders are looking for top-tier names, since the consequence of losing a tenant in a power center has a significant effect on the bottom line.”

The great depression period of the cinema industry continues, Crossman says. “Aging theaters continue to go dark by the dozen,” he says. “Older cinemas are losing customers to new, modern state-of-the-art theaters that offer 20-plus screens and stadium seating.” Seven of the 21 retail bankruptcies filed nationally in 2000 were comprised of theater operators.

But the Crow executive finds some solace in the bankruptcies. “While this bankruptcy trend has negatively impacted retail investment demand, the dot-com shakeout has eased investors’ concern that the future of retail will be exclusively transacted over the Internet,” Crossman says.

Transaction volume, however, could be affected for the rest of this year and 2002 by a continued economic slowdown, the ICSC attendees were told.

“While we may still hope for a soft landing for the economy, there certainly exists the possibility of a longer-term recession,” Crossman says. “If that occurs, large and small retail tenants can be adversely affected, resulting in higher credit loss, more turnover and reductions in rental rates.”

Additionally, “the unknown impact of a continued downturn may cause investors to return to the sidelines,” the broker says.

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