US Retail Update
Posted On Monday, May 24, 2010 at at 3:26 PM by Finance Fanatic I have spent the last two days busily engaging myself in the annual RECON ICSC conference at the Las Vegas Convention Center and I thought I would share with you some insider information I have gathered so far. As for today's trading, we finally do see an end to the green Monday trading streak, which I believe was 15 weeks straight, as the Dow closed down 126 points. This is a significant move as, lately, the market has been heavily relying on the 100+ rally we have seen most recent Mondays. We saw it struggle last Monday, and today it continued to close. It will be interesting to see how this effects the rest of the week's trading.
Government regulation is causing a lot of noise in capital markets. Of course, everyone is familiar with the financial reform bill that is getting slaughtered in the headlines, however, this is not the only one making investors cringe. During the convention today, there was much talk about the the new real estate bill that is floating around, which would essentially raise taxes up to 150% for some real estate owners. Obviously, such a move would cause for serious consequences for owners, which there were many commissions from convention leaders to fight against the pending bill. The government has done a decent job of distracting consumers, while they initiate their massive new tax bills. We new it was in the agenda when Obama took office, however, I thought he would wait a bit before bringing on the taxes. Obviously not.
From a retail perspective, national tenants are actually expanding at the moment. Not so much in secondary and tertiary markets, but are fairly active looking for new locations in dense, primary markets. Local mom and pop stores are continuing to struggle as consumer spending is still very restricted in limited at the moment. Sales are still getting generated by big sales promotions and large discounts as margins still remain relatively small.
It seems, for the most part, lending is a bit easier to find than it was a year ago. However, leverage is much less than it was, and borrowers need to jump twice as many hurdles to qualify for loans. However, I hold from multiple institutions that they were actively acquiring loans on a variety of product types, which is a much better sign for markets. We will see how this remains as the government continues to step back from mortgage loan purchases and inflation begins to show up.
National vacancy continues to be a problem for the economy. Real estate owners are experiencing record vacancy numbers, especially in secondary markets. Not only that, but many rents have been slashed by more than 50% in just a year. I was amazed to hear about just how low some landlords were willing to go in rent to keep a tenant in their building.
As a whole, the overall attitude of the convention has been a lot more optimistic than it was last year. Sure, last year we were in the midst of one of the largest downfalls in US history, but it was more positive. Many do feel that we are a very long way from sustainable values and that a lot needs to still be worked out between banks and owners. There were a few who did still feel that the market will be getting worse and are still prepared for more downside on their properties. At any rate, they don't expect this year to get much better and if the government continues to budge themselves in, many of them said they'll be moving to Australia. Happy Trading.
Retail stocks are having a ruff time alright.
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