While we watch some of the last year end economic data roll in, rather than Monday morning quarterbacking, I tend to use what we have learned to forecast where we are heading next. Understanding the depth of the recession and how it changed some of the generally accepted thoughts about growth, employment, spending patterns, consumers, and future assumptions will help us better understand what to expect from 2013 and beyond. We can also better position ourselves to ride out the remainder of the storm and position ourselves to come out on top.
It is widely accepted that we are in the midst of the worst recovery, from the worst recession, in modern memory. We here at Weingarten Realty, while not immune to the troubles felt by all, were able to ride out this economic storm and come out the other end stronger than ever. Our strategy, over the long term, has been to own and operate some of the strongest retail locations, anchored by necessity oriented retailers; many of which are typically considered recession proof and internet immune such as grocers, restaurants and services. While unemployment spiked, disposable incomes plummeted, and the housing market collapsed, our properties remained the one place in the neighborhood that couldn’t be cut out of people’s lives. No matter what else is occurring in the world, people need to eat. Our grocery anchors continued to sell food and other necessities. There were tradeoffs – people bought more hamburger and less steak, more rice and pasta and less exotic ingredients, less expensive brands of coffee, soda, or crackers, the list goes on. Customers bought more store brands to save some money while giving our grocers higher margins and a better overall bottom line. With the exception of 2008, our grocery anchor tenants continued to show year-over-year sales growth, and despite the trade-offs, were able to maintain margins.
Consumers put off purchases of high end electronics, furniture, sporting goods, and other non-necessity items. They saved where they could and paid down debt every chance they had. Looking back, some quarter’s economic data like retail sales, consumer spending, and inflation were held down by this significant delevering, though today the American consumer is in much better shape financially to weather the next storm. As debts have been paid, disposable income is returning, leading to an expectation for increases in spending and retail sales once again. The across the board tax increase generated by the fiscal cliff “deal” has hit everyone’s pocketbook. As consumers adjust to their new level of take-home pay, they’ll adjust as usual and likely begin spending again by this summer – assuming the government stays out of their way.
The recession spurred some consolidation. We saw the demise of some retailers leaving sometimes one operator in a category that once had three major box stores. We had increases in vacancy and downside pressure on rents, though today these spaces have been filled with superior tenants. The recession caused an effective halt to retail development. Now retailers are again planning to grow at record rates (according to a recent RBC report). With the lack of development, already absorbed vacant space, and completed corporate realignments, space will again be at a premium for these tenants desperate to grow and capitalize on the new, stronger consumer. We sit here on top, ready to lease.