The Double Bubble

After three positive days in the stock market, it is tempting to breathe a sigh of relief and forget the doom and gloom reports. There are still dynamics, however, that will take a while to work through the system.

Take retail real estate. The Double Bubble of the last 20 years has inflated the retail square footage per capita by about 300% (see my Triple Threat blog of 1/24.) At 42 square feet for every man, woman and child in America, we can expect the consumers’ tightening pocketbooks to result in a substantial reduction of retail operations.

The “Double Bubble” was consumer credit driven by inflated real estate prices, which fueled retail sales, in turn driving a boom in retail real estate development. It was a Mobius loop. By the time the cycle came full circle, we were looking at the other side and forgot that it was all the same piece of paper.

A friend in Las Vegas tells me of “Block after block of strip centers that look like ghost towns.” I think that is coming in many more cities, along with big boxes converted into indoor skating rinks and laser tag arenas. (low rent being better than no rent)

Business owners look for opportunity. One I know has temporarily shelved plans to build a prototype discount cash and carry store. He is already seeing better locations sitting empty, and feels that in a little while he will be able to open to greater visibility with less overhead than if he built it from the ground up.

If I were a small business owner considering a move, or with an expiring lease, I’d try to wait just a few more months before I made my next deal. Ask your current landlord to extend you on a month to month basis. It’s doubtful he has a waiting list of potential replacement tenants. The deals you see in a very short time may allow you to completely reposition your business.

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