Bears Outnumber Bulls at Vegas Retail Convention

Once the darling of the real estate investment community, the shopping center industry is feeling the heat due to a rash of store closures, retail bankruptcies and scaled-back expansion plans by merchants. Perhaps it's only fitting then that nearly 50,000 attendees to this year's annual shopping center convention in Las Vegas during the third week in May also felt the heat — literally. The temperature reached a sweltering 104 degrees on Sunday, May 18 at McCarran International Airport. The next day the thermometer hit a scorching 108 degrees, shattering the old record of 102 degrees set in 2006.

More than one attendee at RECON 2008 — The Global Retail Real Estate Convention — made it a point to tell me that because Las Vegas is a desert climate with relatively low humidity, it's a dry heat. So is my oven, but I refuse to stick my head in it for any length of time.

The combination of inflationary pressures, a tough lending climate, weak retail sales and an early season heat wave in the Entertainment Capital of the World took some of the sizzle out of the conference, leading to the decidedly subdued mood. If you don't believe me, just ask the pollsters.

During a panel discussion on the economy sponsored by brokerage Marcus & Millichap — titled “Bears or Bulls: Which Will Drive Your Strategy?” — several hundred conference attendees at the Las Vegas Hilton were polled instantaneously using handheld electronic devices. When asked about their outlook for the U.S. economy, 72% were bearish. In their view, the economy will experience a recession followed by a recovery that will take at least six months.

Despite the decidedly soft outlook, some of the industry's biggest and most prolific dealmakers were as industrious as bees at the show. Case in point: Developers Diversified Realty, the nation's third largest shopping center owner with some 163 million sq. ft. in its U.S. portfolio, conducted 1,400 appointments at the show, about 200 more than in 2007. The Cleveland-based REIT has an active development pipeline valued at $2 billion.

And to be fair, it's not as if every retailer is in a contraction mode. Specialty grocer The Fresh Market, which operates 78 stores in 18 states in the Mid-Atlantic, Southeast and Midwest, has its sights set on expanding to 25 states, says Randy Kelley, senior vice president of real estate and development for the privately held company based in Greensboro, N.C.

“We are seeing a lot of value-add opportunities in the market,” Kelley remarked during the panel discussion hosted by Marcus & Millichap. Specifically, Fresh Market likes to occupy second-generation space. “We're jumping all over those vacancy opportunities and picking up some 20,000 sq. ft. boxes that wouldn't have been available to us a year ago.”

But every time the retail market appears to take one step forward, it just as quickly takes two steps backward. On May 20, Home Depot announced that its fiscal first-quarter profit fell by 66% over the same period last year due to the weak residential housing market. That same day, Target announced a 7.5% drop in its fiscal first-quarter profit due to the sluggish economy.

Although he expects first-quarter GDP to be revised upward from an annualized pace of 0.6% to 1%, Hessam Nadji, managing director of research services for Marcus & Millichap, says it's clear the economy is exhibiting recession-like tendencies.

“I really want your mindset to move away from this technical definition of a recession, or two quarters of negative GDP back to back. If you are losing jobs and growth has gone from a healthy 2% to 3% to next to zero, that's a recession. So, we have to adjust to that,” Nadji advised investors and developers.

“The good news is that I don't think it's going to be very deep, but I also don't think there is a pent-up recovery right behind it,” says Nadji. “I think that for the next six to 12 months we're going to see this touch-and-go with the economy. One quarter will be positive because of the stimulus checks on the way, and then we'll go back to having to work through our challenges.”

And those challenges will vary greatly from market to market. After reviewing recent employment growth trends across the country, I'm beginning to think all able-bodied persons may want to consider relocating to Texas, where the booming oil and energy sectors are fueling job growth in several key markets. Houston, for example, has added 71,500 jobs over the past year while Dallas/Fort Worth has added 66,800 jobs. You might say that Texas is generating its own heat wave on the jobs front.

Contact Matt Valley at [email protected].


A giant in the oil and energy industries, Texas boasts four of the five most improved employment markets. Conversely, Detroit lost 51,000 jobs, making it the least improved employment market.

Market Year-over-year absolute change Year-over-year % change
Houston 71,500 2.8%
Austin 20,100 2.7%
San Antonio 19,100 2.3%
Dallas/Fort Worth 66,800 2.3%
San Francisco 21,700 2.2%
Sources: Marcus & Millichap,
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