I am Gloomy about the future of Shopping Centers

At the Urban Land Institute meeting in Miami a few weeks ago, I gave a presentation on the future of retail real estate. The Quick Points:

(1) We have built a lot of shopping center space over the past 15-20 years. According to ICSC, there was 38 percent more space in 2005 than 1990.

(2) Depression era cohorts are savers; boomers are spenders. According to Pew Surveys, Depression era cohorts think they owe their kids an inheritance and are far less stressed about their finances--even though they made less money.

(3) As depression era cohorts leave us, spending should on average rise, except for the fact that

(4) Boomers have borrowed like crazy in order to spend. Even though median incomes have not risen over the past eight years, consumer spending as a share of GDP has. This is because household debt levels rose dramatically. The Mortgage Debt Outstanding to GDP ratio grew from the high 60s to 100 percent; other consumer credit outstanding to GDP grew from 12 to 18 percent. Boomer households borrowed to spend; it will be years before they will have such access to credit again (which is not at all a bad thing--it just means that the mechanism that has allowed for substantial retail spending has disappeared for awhile).

(5) Retail margins reached historically high and therefore possibly unsustainable levels recently.

(6) The current weakness in retail will likely last a lot longer than the weakness in housing.

(7) We need to hope that inheritances and immigration can bail us out.

(8) Consumption cannot lead us out of this recession--which means it will need to be Investment and Net Exports.

[Note: this is the first time I have tried linking to a Google App; I would appreciate it if someone in comments would let me know whether it worked. rkg]