The recession is finally being felt in the Plains. After months of smug reporting by Nebraska journalists, reminding readers that the economy had taken its toll on others but not on us, the first negative newspaper article was circulated in early January.
The headline? “Nebraskans Feeling the Pinch.”
Most of you have been feeling the pinch for far longer. And I can’t explain why it took so long for the downturn to filter into the nation’s heartland. But, if misery truly does love company, you can now welcome about a million fellow Americans to your plight.
As I look around from my satellite office in Lincoln, the most eye-telling evidence of a runaway recession is the growing number of vacant storefronts. It’s more than the Steve & Barry’s that closed up in Westfield Gateway Mall. Or the Linens ’n Things that went dark across the street, at East Park Plaza. It’s also the rows of vacant inline stores at the mall—some chains, some mom-and-pop retailers. And it’s the increasingly tattered “Coming Soon” signs left standing on cleared sites that show no indication of impending construction activity.
In the Chain Store Age headquarters city of New York, vacancies are visible from every corner of Manhattan. But it is being reported that the downturn is most having its way with Madison Avenue—particularly the upscale shopping blocks running from East 57th Street to East 72nd Street. Area vacancies in 2008 rose to 12.4%, up from 8.6% at the close of 2007, according to Cushman & Wakefield data.
With Madison Avenue rents in the $1,500 per square foot range, that’s a lot of lost landlord and municipality income. And word is that the area has not yet reached the deep end of the downturn. Analysts predict that vacancies on Madison will rise sharply after a less-than-stellar holiday season.
I did find some encouragement, however, from the most recent commercial real estate report from NAI Global. The annual Global Market Report included a forecast of what to expect in 2009—and the news isn’t all bad. In fact, NAI Global predicted recovery to begin in the second half of the year and that it “will not be difficult to achieve.”
According to Jeffrey M. Finn, president and CEO of NAI Global, the one bright spot that we can all cling to is that many commercial real estate markets were at record highs for both occupancy and rental rates when the slowdown began, and may be better able to withstand a severe recession than during previous downturns. “Tight credit has significantly slowed new construction and development,” he said. “When the industry pulls out of the current recession, we will not see massive oversupply of product. Recovery can begin with a healthy balance between supply and demand.”
Here’s the bad news. Things are predicted to get worse before they get better. “We believe we will see further erosion before vacancy rates and rental rates stabilize in late 2009 or early 2010,” said Finn. “Like everyone else, we are hopeful the federal TARP programs and President-elect Obama’s infrastructure investment plan will help get the U.S. economy back on a growth track and be a catalyst for improvement in the commercial real estate sector.”
Hang on. It’s bound to be a rough ride.