Less Shopping = Fewer Malls

by Kris Hudson
Online.WSJ.com

Las Vegas—Retail construction, which surged in recent years amid easy financing and robust consumer spending, has lost momentum as retailers curtail growth plans and lenders remain stingy.

Many of the largest U.S. developers of malls and shopping centers have reacted to retailers' waning demand for space by postponing by a year or more some of their projects. Other venues will be built piecemeal as leasing progress allows. Still others have been canceled before the start of construction.

The slowdown comes as consumers rattled by the credit crisis rein in spending, causing retailers to rethink their previously aggressive expansion plans. Among the national chains that recently pared their growth plans are J.C. Penney Co., Chico's FAS Inc., Starbucks Corp. and Home Depot Inc. At least partly because of the spending lull, nearly 6,500 U.S. stores are expected to close this year, the highest tally since 2001, according to the International Council of Shopping Centers.

Standing in the way of a recovery are deep-seated problems such as depleted home equity and high personal-debt levels. "We believe it is going to be harder for consumer confidence to come back quickly until some of these issues are resolved," J.C. Penney's chairman and chief executive officer, Myron Ullman, said Monday at the shopping-center council's annual trade show here.

The mood at the five-day conference, which attracted nearly 50,000 attendees and is slated to conclude Wednesday, is cautious. "I'm not afraid for '08 [results]," said Michael Glimcher, chairman and CEO of Glimcher Realty Trust, which owns 23 malls. "Where you get nervous is thinking about '09. Retailers are clearly opening fewer stores, and they're being more aggressive" in negotiations with landlords.

Developers, in turn, are hitting the brakes. This year, they are expected to complete retail projects totaling 136.4 million square feet in the top 54 U.S. markets, says market researcher Property & Portfolio Research Inc. But, next year, newly completed projects will amount to only 70.9 million square feet, reflecting the construction slowdown initiated in recent months. In comparison, the average annual production from 1998 to 2007 was 122.7 million square feet.

Read complete article.