NEW YORK - Despite the subprime mortgage crisis and national fears about recession, the shopping center industry remains sound, and holiday sales are expected to increase by 2.5% over 2006 sales, Michael Kercheval, president and CEO of the International Council of Shopping Centers said Monday at a conference in New York.

“The economy is fundamentally strong, the consumer continues to have the wherewithal to consume, capital flows into our industry are solid, retailers are healthy, and the demand for space in our centers exceeds the supply,” Kercheval says. He spoke at the ICSC 2007 New York National Conference and Deal Making.

Still, tighter credit and stricter underwriting standards are having an effect on the shopping center industry. Pricing and underwriting have returned to the levels of 2004 and 2005, Kercheval says, and real estate prices have declined in some areas.

But the U.S. economy’s strength has helped 2007 retail sales run at about 2.5% ahead of 2006 levels, Kercheval says, and he is cautiously optimistic about the 2008 pace. He cites national job growth — 165,000 jobs added in October — as evidence of the country’s economic health. “The economy has not toppled into recession,” he says.

The weak U.S. dollar has driven property sales by international buyers, Kercheval says. Plenty of international investment capital is available for retail properties from pension fund sources in Australia, Singapore and Germany, as well as from the oil-rich Middle East.

While department store consolidation earlier was a major source of anxiety for shopping center owners, that is less true today as centers have brought in high-yielding specialty stores to reinvigorate aging centers.

The shopping center industry is reaping the benefit of corrective steps taken over recent years. A series of consolidations, privatizations and reorganizations helped strengthen the surviving retailers, and investment in upgraded supply-chain processes and diversified product sourcing have also paid off.

At the conference, a number of retailers, including restaurateurs and clothing shop owners, revealed plans to expand in 2008.

The industry has proved resilient in the face of crises from the dot-com bust of 2000 and the September 11 terror attacks to Hurricane Katrina, and it will weather current economic conditions, Kercheval says. After the earlier disasters, some analysts predicted that the industry would plunge into a downturn.

“Not only did that not happen, but stemming from and amidst those mini-crises, the shopping center industry has witnessed some of its strongest years ever, and for a number of important reasons this strength is expected to persist, albeit at a more reserved, and indeed welcome, pace,” Kercheval says.