As reported in the MacRo Report Blog last week, there were some bright spots in what appeared to be a stall in the economic recovery during the third quarter of 2012.For one thing, U.S.industrial production is growing again; during the 3rd quarter it grew at a stronger rate than GDP.
More importantly for the commercial real estate retail segment, retail sales overall began to grow again during the third quarter after a long decline that began last winter and lasted through June.
The resurgence in retail sales didn”t come in time to save two retail strip centers foreclosed on in Frederick County since the spring: and .
The foreclosures mask strong underlying fundamentals in Frederick’s retail market.
Retail vacancy rates in Frederick are holding steady at around 5.5%, which is well below the national average of 7%. The price per square foot to lease retail space in Frederick has risen to $17.10 per sq. ft. from a low of $15.29 during the recession. (Leasing activity was very slow during the third quarter, but that is consistent with all segments of commercial real estate in Frederick, and with the entire economy overall.)
The Golden Mile Plaza and Ballenger Creek Plaza foreclosures are not an anomaly in the face of a strong market, but rather a reflection of how the uneven recovery of the U.S. economy is playing havoc with regional real estate markets.
Putting it more bluntly, shopping centers serving the “haves” are doing fine, while those serving the “have nots” are struggling.
Technically, the U.S. has been out of the recession for 3 years. White-collar job gains in major cities like San Francisco,New York,Boston—and even Washington, D.C.—have been very strong, especially where tech is a dominant industry. But it’s been a painfully slow recovery for the economy overall, and essentially nonexistent for construction and manufacturing.
A great many people in the U.S. are still living the recession, are still unemployed, regardless of the fact this is a “recovery” phase. Consider that the U.S. has only regained 4.5 million of the 8 million jobs lost.
Job growth in the U.S. is being hampered by slowing global growth, rising worker productivity, and the uncertain economy—all of which prevent the business investment levels that drive job growth. Corporate balance sheets have never looked better but they are locked down tight in anticipation of how Congress will choose to resolve the ever-looming budget crisis.
Community retail strip-mall centers—with a large anchor such as Target—are enjoying steady sales and seem to be the assets most desired by retail investors and tenants. At the second level are the neighborhood strip centers with a solidly-performing grocery anchor. The third tier, “mom and pop” strip centers, have been more or less shut out of the credit market completely.
The lower-tier shopping centers are still deep in recession. National chain tenants are choosing to build new in up-and-coming areas rather than take on space in a shopping center in an older or struggling center.
Seen in this light, it’s easy to understand that what happened at Ballenger Creek Plaza(the loss of anchor tenant Super Fresh) and Kinko’s Center (a strip mall in a struggling neighborhood) does not represent the retail market in Frederick as a whole.
But if the U.S. doesn”t see some traction in solid job growth across the board, and soon, it’s entirely possible we’ll see more of the aged strip centers in and around Frederick struggle.
Remember this slogan that seemed to pop up frequently during the election? “It’s the jobs, stupid.” Indeed.
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.