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| Businesses Are Dying Throughout America |
Too often over the last two years I have had tenants contact me to arrange a face to face meeting and saying "we have to talk". It usually starts out by them saying, "its not you, its me, and I want you to know I appreciate everything you have done in trying to work with me but I have decided I'm going to have to close." This talk sometimes comes as a complete surprise but more often than not it take place after a tenant has struggled and fallen behind in paying rent. Yesterday, as I came across the city after visiting a multi-tenant building that I own, I saw building after building for lease, for sale, or just sitting vacant.
Commercial real estate is an illiquid market that solidly reflects the state of the economy, it is slow moving and requires deep pockets. This market does not turn on a dime. When a building goes empty it may remain vacant for years. In a world when the numbers usually require a minimum of 75 to 80 percent occupancy to break even. The market must be deemed broken when occupancy on entire streets and large areas fall below 50 percent as they have in many areas today. The law of supply and demand has raised its ugly head and new construction of commercial office and retail space is weak with little prospect of picking up soon.
It is ironic that when I pulled up to a stop light I found myself behind a new pickup truck with temporary license plates. It was just purchased by a company whose business is booming, the company is the largest demolition company in the area. The company has been busy tearing down buildings to remove them from the tax roles and give relief to property owners who have given up hope. A few businesses have remodeled empty buildings and moved into them but this leaves their old location empty and shifts the problem around. This vacancy problem will linger for years and is exacerbated by government policies tilted to benefit big business.
The cost of new construction has risen and loans in an over built market are difficult to get. When you see a new building being erected odds are it is being done by a company using money from Wall Street. Only time will resolve this supply and demand problem. Janet Yellen and those in Washington should get out of their ivory towers and visit the real world. Here in the Midwest the new tenants of today are nail salons, tattoo parlors, staffing agencies, bankruptcy and disability attorneys. It takes a lot of these to fill up a large 50,000 square foot building. The growing number of empty buildings and failing businesses represents slowing job growth and a hollowing out of the American economy. Small business is being killed by the policies flowing from Washington. Yes, these policies are adding to inequality, expect things to get worse before it gets better.
Footnote; While many people would consider what I have written as proof we are entering a period of deflation I feel what we have been going through is the "major deflationary period" and inflation is about to raise its ugly head. Thanks for reading, your comments are encouraged. This post dovetails with several other recent writings. Related articles may be found in my blog archive. Below are two articles that may be of interest. One deals with the cost to the economy when a small business fails and the other as to when inflation may strike.
http://brucewilds.blogspot.com/2013/03/small-business-failures.html
http://brucewilds.blogspot.com/2014/02/when-will-inflation-strike_1.html
I have been pushing this idea, for some time now. True capital is energy, everything else is money. Now that net energy (total energy-energy to obtain it) is falling, there is a shortage of capital, Remember Easter Island,when the last tree was cut down .
ReplyDelete"And the doctors said as they took their fees,
There is no cure fot this disease"
Interesting and enlightening that you noticed the Wall Street connection. I have been seeing and writing about the same decline in my neck of the woods but have noticed that those areas with a direct pipeline to Federal Money like colleges and universities seem to still be doing well. They are the only areas growing while all around them is in decline.
ReplyDeleteThanks for your comment. In my area I would add to your list hospitals when it comes to government money. Auto zone, CVS, Walgreen Drugs, and Gas Stations when we look towards the Wall Street connection.
DeleteOne of the **very** few new buildings built on the local highway in the past four years is a CVS. I saw someone putting up the "CVS" sign today, it should open next month.
ReplyDeleteOther than that, there have been just one or two new businesses opening in old buildings. A new auto parts store opened in a former used car lot. The local Autozone opened in a building vacated by another auto repair place that moved across the street. That's about it, for three or four miles of a commercial strip.
A local bank branch in a small mall anchored by a grocery store and a Target closed down and was actually torn down - it's part of the parking lot now.
There are buildings that have been vacant or left half-built for three years ALL along the two miles that I drive to work on this highway.
There has ironically been more construction on the road itself than on the buildings that are on either side of the road. One wonders where these commuters are driving to and from, as almost no new businesses are opening and some, such as Sears, are on their last legs.
There is a new site about five miles away that has a brand new strip mall going up, but that is on "virgin" land that was forested about three years ago. The old malls die while just one or two new ones are being built from scratch.
The economical rationale for building a brand new mall while two or three older ones within ten miles die escapes me, but then again I'm not a financier.