In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Saturday, June 21, 2008

Non-Residential Investment: Multimerchandise shopping

by Calculated Risk on 6/21/2008 10:08:00 AM

The previous post discussed the incentives being offered by mall owners to marginal retailers. Move in incentives are common in retail (and frequently in commercial too), but according to the WSJ in the case of Steve & Barry's the incentives were essential:

Without these payments, the stores are barely profitable, if at all ...
That shows the desperation of mall owners with vacancy rates rising rapidly.

Just like for residential, there was substantial overbuilding in multimerchandise shopping space in recent years.

Non-Residential Investment: Multimerchandise shopping Click on graph for larger image in new window.

This graph shows investment in multimerchandise shopping space starting in 1997 in current dollars (inflation adjusted Q1 2008). The circle shows the probable period of overinvestment.

It appears that $20 billion per year or so would be a normal level of investment. However, with the recent over investment, non-residential investment in multimerchandise shopping structures will probably fall below $20 billion per year for a few years.

Unfortunately the investment data for multimerchandise shopping is only available starting in 1997.