What’s happening to retail, industrial/warehousing and hotel property values?

Implications: Wal-Mart has been warning that its domestic store development program is harder to come by as sites are more dear, residents of communities are resisting the new facilities and competitors are more adept at the political side of competition. Now the cost of imports from China and other offshore suppliers is higher even as there is more price resistance and lower demand at home.

Analysis: Since Wal-Mart is the market leader, it follows that retailers in general will suffer some and shopping centers will fall off in rents, sales volumes and ultimately value. Put this together with more restrictive capital costs and terms and we might have a substantial retreat in property values and stocks related to real property such as the shopping center REIT sector. Some have been looking for this retreat for a while now and have been disappointed, but the moment appears near. Following right along will be the warehouse or logistics property market with its dependence on retail volumes.

John Q. Hammons, the substantial hotel developer based in Missouri, was interviewed by the Arizona Republic newspaper at the occasion of his visit to a new property now opening next to the Arizona Cardinal’s football stadium in the Phoenix Metro area. Aside from noting that his costs had gotten a little out of hand here, he revealed that his corporate bookings were off substantially in the last few periods, maybe sixty days or so, and that the forward outlook was even less rosy. He talked about sitting next to a Wal-Mart executive at a recent function who revealed that Wal-Mart’s travel expense was budgeted to be off considerably in the coming forecast period. So once again Wal-Mart will lead a market – this time other than in its primary business. We can look forward to reduced revenues in the hotel business a little earlier than generally expected and reduced values of properties as a result. If 2009 was looked at as a time of distress in the hotel business, we might target early 2009 rather than later in the year as a time of acquisition opportunity for those so minded.

The Arizona Republic also reports that Valley manufacturers are booming with overseas sales and importers are frozen in their tracks. If Phoenix is a microcosm of the national results, we are in good position to recover booty from the countries that have prospered from selling us consumer goods. Worrisome to me here is the quantum amount of offshore sourcing our big manufacturers have placed which will reduce our take. Our sub-contracting industries are decimated or antiquated and our manufactures will no longer be pure U.S. products nor benefit fully from the weak U.S. dollar. This may bring some manufacturing capacity back to the U.S. as offshore suppliers can no longer be the price leader. Our turn appears to be here and manufacturing property may see a lot of activity in markets where the big guys are located or where air transportation facilities are excellent.