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Thursday, March 26, 2009

More Retail Space Coming

by Calculated Risk on 3/26/2009 02:51:00 PM

From Kris Hudson at the WSJ: Developers Scale Back Luxury Projects as Economy Shifts

Amid the worst retail climate in decades, a number of shopping developments are slated to open this year ...

Real-estate developers are expected this year to complete more than 78 million square feet of new retail space in the top 54 U.S. markets, according to real-estate-research company Property & Portfolio Research Inc. While that is down from the 144 million square feet completed last year -- the peak number this decade -- the amount expected this year probably is more than the market can absorb in its second year of a recession.
The situation is a reminder of the vulnerabilities of commercial real-estate development to changes in the economy. Because it can take years to get a project from conception to completion, projects that sounded like a great idea a few years ago are fast becoming problematic for developers.
For certain retail space, the absorption rate is negative because of all the store closings and retailer bankruptcies. Vacancy rates are already climbing sharply, and this additional 78 million square feet of retail space will push up the vacancy rate even more.