Wednesday, July 09, 2008
Commercial Real Estate The Other Shoe
IMO CRE is so overbuilt there is no way to calculate the correct amount. Not only too much but in radically wrong places. It isn't enough to extrapolate from the time before the bubble. By the time we finish burning off excess square footage the demographics will have also shifted. I am also of the opinion (with no supporting data whatsoever) that returning to trend will be nowhere near enough. I look at some of the actual brick and mortar layouts and don't understand what Sam's Club is going to do with the 4000 square feet currently devoted to just flat screen televisions. The real pull is going to be ultra low cost basis operating cost stores that will flood the vacated spaces. My regular reader knows I am real cheap. I shop thrift stores and hesitate to buy polo shirts costing more than $2.50. Many of these places went quietly out of business due to real estate pressures. Not just lease rates but if the charity owned land the CD returns from the sale proceeds could often do more good for their charitable work than operating the store.
Big changes coming. Welcome to Craigslist America.