By Mark Di Tommaso
Owner/Broker, 8 West Property Management
February 13, 2015
“Location…Location…Location”. The foundation of property management and investment from the beginning. However, revolutionary events like the introduction of the automobile and advent of the supermarket transformed the utility and value of individual lots (from grazing land to prospective suburb / affluent neighborhood to smoggy prospective slum) bestowing immense advantage or disadvantage to individual investors.
Vast enclosed Shopping malls were part of such a revolutionary shift. These commercial centers served and defined vast segments of population. And not just in the sense of distributing a certain quantity and quality of goods and services.
The large shopping centers largely wiped out small businesses on traditional main streets – with obvious negative consequences for the formerly well placed neighborhoods surrounding them. The original neighborhoods simply had inferior access to the newer, more fashionable shopping at the big shiny new malls.
In time large shopping centers became the economic engines that provided the sales tax revenue suburban cities depended upon to provide services for all their neighborhoods. Imagine the profound ramifications of these big malls starting to disappear.
During the early 2000’s, it is estimated that there were over 1100 enclosed shopping centers throughout the US. Now there are about 700 with some experts predicting that half of those will fall over the next 20 years.
To be sure, some of those malls will be repurposed to provide some potential for tax generation and profitable investment. Some investors will exercise foresight and imagination to “win” despite the obstacles and some investors will sit uncomprehending and very possibly “lose”.
But what happens when geography becomes less commercially relevant on a macro scale? How many nationally known retail chains have disappeared? How many hundreds of Radio Shack outlets existed before that company became unviable as an independent entity?
Even chain restaurants have been affected. It couldn’t be more basic – less people with reasons to go to the big malls result in fewer hungry mouths to feed there. Food court dependent chains have suffered and in some cases gone under.
In stark contrast to the decline and often fall of large malls and conventional retailers – Online Sales at the same time became a substantial reality. Recently, Amazon.com achieved some 75 billion dollars in sales. That was a lot of money out of local economies. And online sales don’t look to be getting any smaller.
The way to capitalize on this trend through investment property investment may not be clear, but it likely exists. Maybe in the form of multi-purpose local service centers that would allow 7-eleven type micro retail shopping (our tenants can now pay their rent at 7-eleven) and the pickup of online purchased goods. Maybe part of the answer is socially oriented mixed use conversions of obsolescent large malls?
Change in retail spending and associated retail was unsettling, but at least we could always count on the need for office space. Telecommuting has changed that.
According to the 2010 census, 13.4 out of a universe of 142 million employed people worked at least one day a week from home. According to at least one expert, the ideal allocation of 250 square feet of office space has shrunk to 195 square feet. Multiplied by millions of employees, that’s a lot less needed office space
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Does that mean office space is a bad investment? Not necessarily, but it can be argued that smarter, more flexible office space will enjoy an ever increasing competitive advantage. Mixed use structures that can lean on residential income and provide the potential for being an extension of the work from home trend look to be a significant part of the answer. Economical executive suites with attractive and functional common areas appear to be another key approach.
It’s a harsh, almost Darwinian historical real estate reality – but one investors over priced & sold at a loss mistake has often been the next investors bargain acquisition. A major challeng for quality property managers is go beyond just managing current assets to become a valuable resource in guiding the profitable acquisition of new real estate investments.
