Friday, November 14, 2008

Retail Real Estate: The Next Shoe To Drop?

Richard Green has an interesting piece on why retail real estate is likely to suffer for awhile. A brief summary:

1. Increase in retail space over last 15 years.

2. Depression era cohorts (people born during the Depression) spend less on retail.

3. As these people die, spending should increase.

4. Baby Boomers spend more on retail, financed heavily by credit.

5. Retail margins reached high and possibly unsustainable levels.

6. Inheritances and immigration are possible ways out of this.

8. Consumption cannot lead us out of this recession. Investment or Net Exports are the only way. (Richard leaves out government spending, which was the path of the last depression.)

We can expect retail to take further hits. Major companies are going bankrupt (Circut City, Mervyns etc.) due to rapid, unsustainable expansion. And things are likely to get worse, with all the layoffs and decreased access to debt the American consumer is tapped out.

In my belief, some new and radical form of debt will have to be created to continue to allow American consumers to live beyond their means, or we are going to see a more frugal and thrifty nation.

Imagine the end of Walle, when all the obese space travelers depart the ship. I believe we will finally have to come down from the clouds.

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