Wednesday, September 10, 2008

The Mall Space Glut

Watertown has been experiencing a fairly substantial commercial real estate boom over the past 4 years, but there is an important cautionary tale of overbuilding that was detailed in yesterday's Wall St. Journal.



"Developers have built one billion square feet of retail space in the 54 largest U.S. markets since the start of 2000, 25% more than what they built during the same period of the 1990s, according to Property & Portfolio Research Inc. of Boston. U.S. retail space now amounts to 38 square feet for every person in those 54 markets, up from 29 square feet in 1983, the firm says."



"For the first time since the 1990-91 recession, occupied retail space in major U.S. markets is expected to decline this year, falling by 1.2 million square feet, projects Property & Portfolio Research. Last year, occupied space grew nearly 61 million square feet, the firm says. Retailers that helped drive the building boom -- Wal-Mart Stores Inc., Home Depot Inc. and Starbucks Corp. among them -- have nearly saturated the U.S. Earlier this year, Home Depot said it would close 15 unprofitable stores and cancel 50 proposed ones, throttling back its store-growth ambitions to a meager 1.5% a year."



How the Home Depot in Watertown avoided the chopping block is beyond me. For all of the building on Arsenal Street in Watertown it is important to note the very low occupancy rates of some of the newest strip malls. There is simply too much space to match the limited demand in Watertown. When coupled with new commercial development closer to Fort Drum it could make for Watertown a ghost town for commercial real estate in a couple of years.



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Enough with the local chatter - Lehman Brothers looks like the next big broker to fail. It seems 50/50 that Lehman could survive, but it's never going to be the same firm that it was a powerhouse in it's heyday. Lehman might make a nice division for a large foreign bank, but it's going to take a CEO with a gambler mentality to pull the trigger. Lehman and Washington Mutual - another stunning fall from grace - seem to be the major games in town right now.

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