Monday, June 20, 2016

Late To The Economic Party?

I have written about this business district twice previously in my personal economic blog.  It is an older business district located between two fairly affluent suburbs near my house.  It is very close to the local mall and big “strip” stores. It is also very accessible to the expressway.   The district is home to many older offices and small businesses which either do not need the street exposure or prestige of being located near the mall or cannot afford the higher rents.

I find this district interesting because I believe it serves as a reliable (tangible and ground level) economic indicator. These are the smaller, more marginal, more fragile, businesses which tend to feel an economic draw back the earliest.  I first noticed the connection before the Great Recession.  Prior to the downturn, businesses in the district started to close even though the mall area was still thriving.  There were empty storefronts and numerous “For Lease” signs.  Male oriented entertainment venues, highly dependent on disposable income, closed.  The self-carwash even promoted “bucket washing”, something that is usually strictly prohibited at these operations.

When the recession did hit, I labeled this area an “economic war zone”.  There were more places closed than open. Long time businesses, such as the pizza parlor, went under.  It looked as if a depression had hit and it was surely depressing to drive down the streets.

However, the second time I wrote about this district was to describe its economic recovery.  New businesses such as an Arabian market and a pet grooming service had moved into vacated buildings.  Two men’s-oriented entertainment venues opened or returned.  No more bucket washing was permitted at the car wash.  A field where an older building was demolished, found use as a display area for a storage barn builder.

Subsequent to that blog post, there was even more development.  A micro-brewery opened in a nicely remodeled building.  The biggest multi-business strip center was given a much needed make-over.  The “For Lease” signs mostly disappeared.

Unfortunately, if you haven’t already surmised, there is a reason that I am writing about this area again now.  About 9 months ago, things started to erode once again.  The Arabian market is gone, so is the pet grooming place.  The men’s entertainment venues are no more.  The car wash has closed.  The “For Lease” signs are increasing at a steady rate.  The district today looks eerily similar to what it did right before the Great Recession.

(And a few days after this post appeared on the FTR website, the largest bar/entertainment place in this area announced they were closing down after many years in business)

This worries me with an economy growing at the GDP rate of 0.8% (Q2 is expected to be 2.4% - FTR). However, what concerns me most is what first appeared to be a very positive development in the area.  A developer tore down an aging office building
(which had a weird 1970’s oriented design) and constructed a beautiful new office building designed to house five companies.  The building was completed promptly and the “For Lease” signs appeared around the beginning of the year.

And --- it sits empty. Considering you would begin to market the property when you were constructing it, that’s over seven months with no takers.  Of course, the property could be over-priced.  Let’s hope so, because there is always some builder or investor that takes a risk and the end of the economic cycle that later really wishes he hadn’t. 

Let’s hope this developer wasn’t extremely late to this party, even to a party that was never that spectacular.

This post first appeared on the FTR website.  FTR is the leader in analyzing and forecasting the commercial transportation industry.  For more information on FTR reports and services, please click here.)