Retail’s Misfortune in the Inland Empire
This guest post is written by Thomas Galvin of Colliers International. Thomas is a commercial real estate analyst for Colliers International with a regional focus on the Inland Empire. You can learn more at his commercial real estate economic blog www.inlandecon.blogspot.com.
The lifeblood of retailers are consumers. The industry adage that “retail follows rooftops” is shorthand for “new residents in an underserved market will attract retailers looking for value”.
The recent housing boom in the Inland Empire presented such a value play for retailers and developers and retail projects would not only follow the housing developments, but in many cases they were being constructed side by side. Massive power centers and large retail projects fueled by the housing equity boom were inevitable and in some ways justified by market research. But what actually happened was more motivated by greed and reckless optimism.
Growth in the Inland Empire peaked in 2004 and has been in declining ever since but retail development has not. Conditions have changed between the planning stages of development and execution and much of what was envisioned is now economically inappropriate. Furniture stores and hardware stores as foreclosures are mounting and high end fashion and boutique stores the unemployment rate in the Inland Empire is among the highest in the country.
The following chart (click to enlarge) shows population growth and retail growth for the Inland Empire, Orange and Los Angeles counties. Retail development closely follows population growth in Orange and Los Angeles Counties but drastically overshot in the Inland Empire. Since retail projects are still coming to market even as major credit tenants continue to file for bankruptcy, you can expect further increases in the vacancy rate and further downward pressure on rents.
The new industry adage will be “retail busts follow housing busts”.
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