Monday, September 21, 2009

Main Street Vacancies

At the beginning of the year, many retail analysts worried that the malls could empty out. That hasn’t happened at quite the pace that was predicted. Mall managers have gone to great lengths to keep malls mostly occupied, including deals that allow some new store tenants to go for months before paying rent.

Vacancies continue to pile up in downtown areas, though, particularly in smaller towns and in small cities where a major employer has closed its offices. Power company SCANA is moving out of its old downtown headquarters in Columbia, South Carolina, for example, and as 900 workers leave downtown, nearby stores, restaurants, and bars are preparing to cut back, and some may have to close if another tenant is not quickly found for the office space.

In other downtown areas that were already mostly vacant before the recession hit, you can walk past whole blocks of empty storefronts. In older towns, many of the stores are houses from the late 1800s that were converted into stores in the 1950s, and some of these are now being converted into apartments.

Parking is one of the reasons for downtown decline. It is hard to attract shoppers where there is a shortage of parking, or where parking lots are hidden behind buildings in places that are not so easy for visitors to find. Many cities are making the problem worse by increasing parking fines for people who park incorrectly on the street, a move that may make potential shoppers want to avoid the downtown area altogether. A better approach is to use vacant land to add off-street parking, but local governments resist this because of the expenses involved. Zionsville, Indiana, is spending $180,000 next month to remove a vacant gas station and build a parking lot. It seems like a lot to spend for a few dozen parking spaces, but it puts Zionsville in a better situation than a city like Calgary, where even parking fees of $10 an hour aren’t high enough to relieve the perpetual shortage of parking in the city.

Downtown vacancies have even hit the United Kingdom. Many American towns might envy a 12 percent vacancy rate, but in the United Kingdom, where downtown vacancies are expected to be less than 5 percent, the 12 percent vacancy rate found in a recent survey is considered a crisis.

The pace of U.S. mall store closings, over 10,000 a month this year, is not expected to slow down much next year, and this means malls and downtowns will have to compete harder to attract new stores. Ultimately, this is bad news for the landowners, as rents will have to fall well below current levels to keep retail space occupied.