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Friday, February 15, 2008

CRE: No Tenant at the "End of the Rainbow"

by Calculated Risk on 2/15/2008 03:00:00 PM

From Michael Corkery at the WSJ: Commercial Builder Woes: What if There’s No Tenant at the End of the Rainbow?

... Knoxville builder [John Deatherage] ... was slated to break ground on six retail projects across the Southeastearn U.S., but his investors have put four developments on hold through the first quarter, at least.
“If the median home price drops from $400,000 to $350,000 that changes the whole neighborhood,’’ he says. “That directly impacts commercial retail.” For example, he says, it’s difficult to attract higher-end retail tenants to a neighborhood where home values are sinking or uncertain at best.

Some 145 million square feet of new retail space was built in the top 54 markets last year, with another 123 million square feet in the pipeline this year, according to Property & Portfolio Research. By comparison, the annual average between 2000 and 2006 was 118 million square feet.

“My guys are not going to break ground if there is no tenant at the end of the rainbow,’’ he says.
And for a visual, here is a photolog of empty retail space in the Sacramento area from Sacramento Real Estate Statistics (hat tip Atrios)