WSJ asks: are we on a retail real estate cliff?

There was a thought-provoking article in the Journal today about whether retail real estate is one the same cliff that residential real estate is. After all, Centro Properties teeters on the edge, Talbots is closing some stores, The Bombay Company has closed and even Starbucks finally admits that it has overbuilt. (How much are rents softening though? I'm not hearing much about this yet.)

Just like residential, it depends. It is often hard to generalize national trends in retail. Rule of thumb: Retailers always want to be where the action is. If an area is hot then there should be no worries. But if the area is overbuilt (which you see a lot of -- you may see in some markets absorption problems) or the market is in the dumper, then, well, not so much. I'm hearing of plenty of activity in some markets. And not everyone is slowing down or stopping. I know I read somewhere yesterday that Costco is continuing its expansion plans.

Another thing: as the article says, real estate (and especially retail) is cyclical. Not that I am a market-timing guru or anything, but it makes sense that, assuming for the sake of argument that we are on some general downtrend, to start planning a new development in a good location so you will be online at the right time. (Of course if you go beyond planning you have to convince lenders and investors of your strategy and you run the risk of empty dirt or worse yet empty storefronts. This is the importance of, as the story says, holding power.) Unless you think the next great depression is coming...and I don't.

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