I moderated a panel last fall about the financial crisis, and one comment that stood out to me was that commercial real estate would be the big story of 2009. It appears that prediction is coming true. NPR had a story this morning about the huge mall company, General Growth Properties. GGP is in big trouble. And one ridiculous fact explains why.
The story points out that the U.S. has 20 square feet of retail space per person. That's six times more than any other country! These companies have built mall after mall after mall, and a lot of it with borrowed money. GGP borrowed billions to build up its mall empire, and now, like many homeowners, the company can't keep up with its mortgages.
A couple years ago, American Public Media did a series called Consumed where we asked the question, is our consumer economy sustainable? Can we keep over-developing and over-shopping and over-charging our way? Little did we know how quickly and how flagrantly the answer would come. Part of the series focused on the outrageous development of Las Vegas. Well, GGP owes $900 million on two shopping malls in Vegas that, let's just say, aren't getting a whole lotta foot traffic.
Conventional wisdom might be that Americans brought this upon themselves through their shopping mania. I'm sure to some extent that's true, but was there really such a level of demand for more malls? How many cities have you been to that look exactly the same, precisely because of all the malls?
These real estate companies overbuilt office space too, and what's truly startling is that they're still building more space. Check out this story in today's Arizona Capital Times. It says the vacancy rate for office space in the Phoenix area is almost 20 percent but that another 3.6 million square feet is under construction and is expected to hit the market this year. Good luck with that.
I've never enjoyed going to shopping centers. So many of them are eyesores. They were built in about five seconds on a piece of land that wasn't designed for a. anything to be built on it or b. a mall. I especially hate the ones where the parking spaces aren't big enough for a tricycle, and getting in and out of the place has the potential to break your will to live. But I've always just kind of accepted that we are a nation of strip malls, and sometimes you gotta go buy stuff. Plus, I like hanging out with people.
So this is even more distressing. Now, we might be a nation of empty shopping malls.