Thursday, September 29, 2022

Retail space


In the period between 1880 and 1920, the United States covered itself with a net of railroads. Towns sprung up on a five-to-seven-mile-grid across the eastern agricultural areas as that was about the maximum, economically viable distance to haul produce to the shipping dock with horses or oxen.

Lured by the promise of a "sure-thing", investors piled into railroad stocks and the dense network of rail lines marched through the eastern, and then the western Great Plains.

Technology moved on.

With the advent of motor-vehicles and better roads, many of the spurs and feeder-lines became obsolete and were allowed to slide into disrepair. Lines consolidated. Many went bankrupt. Towns that relied on the commerce associated with rail lines became ghost towns.

The "sure-thing" over-played its hand and became a classic case of a growing organism overshooting the carrying capacity of its habitat or host.

Retail space

One could make a cogent argument that the United States, and to a lesser extent Canada, are grossly over-built in terms of retail space.

If one were to look at the European Union and Japan as a basis, one could state that the United States has approximately five-times more retail space, per capita than it "needs" and Canada has four-times as much.

Nature abhors a vacuum. With that much space and so few customers, is it any surprise that America's malls are patrolled by feral youths?

Like three crack-heads trading financial advice

It gets worse.

The amount of space devoted to supporting e-commerce (warehouses) grew at an exponential rate over the last fifteen years. The largest players, realizing they were approaching some kind of limit, either cancelled projects or allowed them to be finished...but did not take possessions.

For various tax reason, many of those warehouses were not actually owned by the e-commerce retailers. Speculators built them on faith and a contract...a contract that had "escape clauses" on page 47.

Government officials, who had been rubbing their hands with glee in expectation of fat paychecks to tax and escalating land values to bloat property tax collections, were dismayed to find themselves with 500,000-square-foot, attractive nuisances on their hands.

Investors are fleeing like rats leave a sinking ship. The limited-partnership of the investment structure allowed them to walk-away after losing their initial investment with no further entanglements.

Government officials are doing what they always do, they "help".

Even as I type, there are undoubtedly clerks cranking out applications for grants to convert abandoned warehouse space into retail and entertainment venues. Never mind that these enormous buildings are far from other retail destinations. Never mind that retail is (arguably) grossly over-built. Never mind that these warehouses have parking lots that are approximately 20% as large as a comparable purpose-built retail building would have.

Government has an answer for everything. Public transportation will "fix" the problems with poor location and lack of a parking lot...and the drunks that spew out of the yuppy bars at two in the morning. Search for the funding for the public transportation will result in more grants.

Expect municipalities to float bonds to subsidize redevelopment of the sites. Bonds that taxpayers will be on-the-hook for if things don't pan out.

Memories are short. Seven years ago they were writing grants to turn vacant retail space in inner-cities and first-ring suburbs into warehouses.

Grab your popcorn, folks. This promises to get interesting.


  1. ERJ, the simple fact is we are grossly overbuilt - even in my current AO, retail buildings in prime locations are sitting vacant. I think of the three to five local malls that were here we when we moved, only two are still open and one is not really a place one wants to go (the other one, appealing to high end expenses, is still doing fine).

    The mile warehouses are just a sign of what the current economic "thing" is (remote ordering, point of delivery) based on a fully functioning supply chain, cheap energy, and an economic system that wants to buy things. We are building over good farm land to do this. When it fails - as it always will, as the standing corpses of previous building phases now attest to - we will be left with even less usable land and more unusable buildings.

    Were governments more clever, they would be incentivizing building removal and land/habitat restoration, not the other way around.

  2. My company has expanded warehouse space like crazy in the last four years to keep up with demands, we still can't keep up currently.

    We've been pretty good at anticipating highs and lows in the decades we've been around, kinda wonder if we'll do the same here.

  3. I'm wondering if the biz community is smart enough to engage in consolidation.

    Home Depot and Lowe's aren't candidates for sharing warehouse space, but Target or Hobby Lobby and Ace Hardware might be. Given the advantages of high tech warehouse management there are certainly co-sharing opportunities. Whether they materialize, I dunno.

    1. Ace Hardware and Ridleys (grocery chain) share buildings in the two small towns closest to me. Also an Arctic Circle (fast food) in the newest one.

    2. You must be close to me.
      In small towns, consolidation like Ridley's and Ace makes lots of sense. I'm surprised they don't have a clothing section also.
      They do have a gun/ sporting goods section also, in those towns the only one.

  4. Now superimpose a declining population

  5. It sure looks to me like government support leads to a room and bust cycle, or at least a worse one than without their "assistance".
    As mentioned above, it makes more sense in most cases for the government to support consolidation and make more farm/ grazing land available.
    I read a while back about pilot programs to do that in Flint and some other Michigan towns. It would be interesting to learn how they are doing.

  6. Boom/bust is on a 7 year cycle, as always... It 'may' slide a year or so, depending on which party is in power, but you can watch the cycles over YEARS, going back to at least the first world war.

  7. I wonder if construction of Family Dollar and Dollar General stores can be an indication of anything. They seem to pop up everywhere on every vacant lot.

  8. Next up? Shipping? You can only move stuff across the globe when energy is cheap.

    1. We may see the return of sailing ships to move certain cargoes.

  9. never mind declining and soon extinct disposable income if these spaces are used for entertainment or recreational goods.

  10. Given housing prices, convert them to housing use. You may not get windows, but you get cheap rent. Plus, given the size of the behemoths, you could have everything from a studio to 5 BR/4Ba under one roof, with room for stores, shops, daycares, schools etc. I'm thinking of a low-rent version of Paolo Soleri's arcologies.

    1. I worked with one fellow who reportedly bought an old, leaky camper for next-to-nothing and parked it in a rental storage unit. For a few dollars under the table, he ran an extension cord and lived there for several years.


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