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Further Downside for Retail REITs?

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Bloomberg has up a fairly grim article arguing that despite falling 78 percent, retail REITs have further room to drop. In the story, Howard Davidowitz ups the ante considerably in terms of what's at stake. He says more than 200,000 stores will close and that "thousands" of shopping centers will close. He's not the first to suggest thousands of shopping center closures. Burt Flickinger projected 3,000 would close in December.

The store closure number is a whopper, though. I think the store closure number has lost meaning the past 12 to 24 months. Previously, there were numbers reported by Merrill Lynch and ICSC that counted "chain store closings." In a report dated October 31, 2008, ICSC projected that there would be 6,100 "announced store closings." That number is inline with the range historically reported. (There's a chart in this story based on these figures.)

However, another number that gets tossed around is based on the Bureau of Labor Statistics' record of actual store closures. Last year, the BLS counted 148,000 of these. To me it's confusing to have these two sets of numbers with such widely different ranges. The BLS estimate, for example, includes every mom & pop in every small town that closes. That's less meaningful to me because those tenants are less likely to be in shopping centers. The "announced closings", which come from the major retailers, are more telling. And it's useful to track those with what we know historically to get a sense of whether what we're seeing now is out of the ordinary or not. Normally, more than half of the announced closings occur during the first three months of the year. So far, my own count is 1,764 announced closings. That's actually in line with recent years.

Getting back to Davidowitz, he seems to be talking about the BLS figure and arguing that we'll see a jump from the 148,000 in 2008 to 200,000 this year. What do others think?

U.S. mall owners are coming off their worst-ever year of stock market losses as consumers cut spending and retailers shut stores. Vacancies at malls and shopping centers approached 10- year highs in the fourth quarter and will rise further, according to New York property research firm Reis Inc. More than 200,000 store closures are projected for this year by Howard Davidowitz, chairman of New York-based retail consulting and investment banking firm Davidowitz & Associates Inc.

“Thousands of shopping centers will close,” Davidowitz said in an interview. “It's a debacle.”

The global credit crisis has eroded retail profits worldwide and put REITs including General Growth Properties Inc. near bankruptcy as they sell assets and negotiate with lenders.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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