WHERE HAVE ALL THE GROCERS GONE?

Implications: This article is important because it provides an early impression of what is happening around the country  to vacancy rates,  asking rents and effective rents.  Obviously if true, this limited survey by Reis Inc., could provide an early indicator of a growing problem in the shopping center industry However, based upon my experience in this industry over many years and many economic cycles, I suspect that not only is the information rather shaky, but that it needs much more in the way of careful analysis to be meaningful for use in making investment decisions.

Analysis: Although the article tries hard to impart an aura of credibility by pointing out that this survey supposedly shows a drop in "asking rents"from 0.9 in the first quarter of last year to 0.4 this year and a supposed slowdown in "effective rent increases" from 0.8 last year to only 0.9 this year.

My first instinct is "where the heck do these figures come from?" and "who the heck has the time or money to maintain such a survey accurately"? I suspect our gentle GLG News reader should take these numbers with a large "grain of salt".

First of all I suspect that no effort was made to categorize the surveyed centers by quality of anchor tenant, or age, or condition, average size of vacant space, or competition or anything else that might allow for a better understanding of what is really happening in the industry.

As with many surveys of this type, a few phone calls to some of the larger brokerage firms with retail specialties, constitute all the "due diligence" needed for sending out a press release and trying to get some free publicity.

Retail brokers and leasing agents are notorious for voicing their opinions based upon nothing more than last month's commissions. Rarely do they ever make any distinctions for such important factors as the vacancy rates of these types of centers before the recession took root, and/or how much new competition had to do with the increased vacancy rates of older centers.

Before this minor survey becomes the gospel and starts a whole series of articles in the news-hungry trade and business journals, I would suggest that someone take a careful look at the strip center REIT's and see which of them are reporting higher or lower rents or vacancy rates. My hunch is that the quality REITS will report only very slight differences from past patterns while the REITs owning the lower quality centers such as Centro, will report a continued (and expected) slowdown in results.