The Dying Commercial Corridor

Strip commercial corridors are dying and market forces are the cause.  For decades government planners have zoned road frontage on every major arterial road and many if not most collector roads for general commercial development.  The private sector has responded by building every size commercial center from stand alone single-use buildings, and small multi-tenant centers, to excessively large power centers and lifestyle centers. Two examples illustrate the scope of the problem.

Las Vegas
According to Vegas Inc. the retail vacancy in Las Vegas is in excess of ten percent.  A glut of new space was built during the boom forcing major drops in rents causing aged centers to be completely abandoned. In this market, John Stater,research director at Colliers International Las Vegas. estimates a 20-year recovery period.  That recovery includes demolition of many obsolete buildings and even some newly built products.

Suburban Orlando
In Central Florida, State Route 436 is a major 6-lane arterial that connects Orlando International Airport to Interstate I-4 and passes through three cites including Orlando, Casselberry, and Altamonte Springs. Here the problem is even worse. One three-mile stretch has 1,077,215 square feet of commercial space.  As of April, 2012, over 230,000 square feet (21%) was vacant.

Trends
Some might contend that with the natural recovery of the economy this space will once again fill up with productive retail businesses.  Unfortunately, retail trends suggest otherwise. The entire nature of retailing has changed.  The demise of Circuit City, Border Books, Tweeter, and Crazy Eddie are the canaries in the coalmine.   Following them are those that are trying to adapt to avoid their own demise including Sears, Best Buy and K Mart.  Best Buy has adopted a new business model focused on smaller stores selling cell phones, and tablets.  The plan is to roll out 600 to 800 of these smaller stores by 2016 but industry experts openly wonder if its too little, too late.

One major structural change is, of course, on-line retailing. Sales from online retail is projected to continue to grow at a 10% compound annual growth rate through 2015 reaching $215 billion in sales. According to the US Census Bureau, for the second quarter of 2012, total retail sales were estimated at $1,077 billion.  On that total, e-sales constituted $51.2 billion or 5.1% of total sales.  This is a 15.3% increase over the same quarter last year.  The most popular products sold through e-sales include digital content and subscriptions, computer software, consumer electronics, jewelry and watched and event tickets.

Further exacerbating the glut of retail spaces on suburban corridors is the cannibalization of boutique retail by discount retailers, lead by Walmart. Much research has been done on this.  One such report completed by Elena Irwin, a regional/community economist with the Ohio State University Extension Service found that an average of four small retailers shut their doors following the opening of a new Walmart or K-Mart.  Another researcher found that the major expansions of Walmart in the late 1980's through the 1990's accounts for 50% to 70% of the decrease in the number of small retailers across the United States.  These stores will not return and commercial centers built to house them will continue to be predominantly vacant.

Watch for future blog posts for discussions on ideas for repositioning corridor properties.