ARE SHOPPING CENTERS AND RETAILERS REALLY HURTING?

Implications: This apparently alarming article purports to reflect an overall decline in the occupancy of shopping centers in the Midwest based upon a survey taken by a leading real estate brokerage firm. However, a careful reading of the article shows that the increase in vacancy from 7.69% to 7.81% is due entirely to the increase in vacancy on the South side of Chicago which has been the location of most of the bad loans and the highest area for mortgage defaults.  What this tells me is that mortgage defaults are having an impact on shopping center tenancy but the impact is really limited to those areas that have seen the largest number of bad loans granted. 

Analysis: While there is no question that most retailers are slowing down their rate of expansion, I submit this is due more to the fact that most of them have reached saturation in their best markets and that much of their recent expansion has been due to the artificially low interest rates that have allowed some of their marginal new locations to "pencil out" on their pro formas.

As most successful retailers will tell you, their slowdown in expansion is only incidently related to the current mortgage default problems and even less to the poor sales predictions for this holiday season.

In my view this article is just one more example of the media's need to cast headlines about inconsequential matters in the most lurid and controversial terms. Retail vacancy has been gradually declining for many months and the results of this most recent article tells us nothing actionable for our investments in retail REITs or Retailers in general.