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The future of Folsom
Wednesday, January 16, 2008
In Caroline Baum's commentary at Bloomberg this morning, the following observation is offered regarding the outlook for commercial real estate now that we are well into the residential real estate bust.The even worse news is that commercial real estate, where strong growth has been offsetting the collapse in the housing market, may be the next shoe to drop. The old maxim that retail development follows new housing is about to be tested in a case of new supply meets slack demand.
Nowhere is the continuing build-out of retail outlets more apparent than in Folsom, California, a little over an hour north of here, as seen yesterday during a day-long visit to the area. It is a virtual smorgasbord of places to spend money and they all look brand-spanking new.
The Wall Street Journal reported last week that since 2005, ``developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category.''
Projected retail demand ``will justify only 43 percent of the new space delivered this year and last,'' the Journal said, citing market-research firm Property & Portfolio Research Inc.
If lending standards to business were anything like those used to evaluate potential homeowners, there's going to be a lot of empty mall space across the country.
There appear to be a lot of brand-spanking new houses as well and, if Folsom is anything like the rest of the state, a lot of them are probably looking for buyers.
The Costsco shown below sits atop a hill near the freeway where we exited as if it were a king overseeing all that it rules. To the north is a seemingly endless outdoor mall with well-known retailers in gargantuan sized units and east on the 50 freeway is what looks like a "destination" retail center with a Mercedez dealer and a few hotels to tempt upscale shoppers and provide comfort to those who literally shopped until they dropped, respectively.
Each time we venture toward major population centers here in Northern California we see the same thing - row after row and division after division of recently built homes and even newer retail centers of mind-boggling proportions.
More than anything else in recent years, residential housing and retail spending have made the California economy seem unstoppable. With the former now in clear distress and the latter about to follow, the downward spiral might seem unstoppable too.
11 comments:
For those in southern CA, check out Ontario, I15 north of the 10. Mind boggling.
How does zoning affect expansion? Has it been easier to build recently? If so, it could explain part of the excess. Some businesses grab the opportunity while it's there.
Looks like these over-expanded cities are ripe for some Chinese factories.
I tried to come up with a housing bailout plan of my own. It was an instructive excercise. I wonder what big plan the FED and the Treasury have ready to put in place?
I envision empty WalMarts and Costcos in the future being filled with vendor spaces for the market bazaars and swap meets....
Greetings Tim, I hope all is well with you. Does anyone think this was all by design? Surely the folks in government and large financial institutions recognized the fact that so many boomers were going to be gone in "x" number of years. The only way to ensure the current level of tax collection/debt burden to keep the ponzi sche... I mean government/financial institutions afloat is to replace the people who aren't going to be here in the not so distant future. They've already let half of Mexico into this country, surely realizing that they multiply like mice. Look at the quote in the comments from the next post down "Remember this?" The quote from the realtor in Miami "demand from baby boomers and foreigners would prolong the boom indefinitely." Well once the boomers are gone the only way to sustain, nevermind prolonging the boom, will be to open the flood gates to foreigners. Why wait and let your kids get rich off the future boom in creation of infrastructure when you can build it now and reap the benefits before your too old/dead? On the other hand maybe everybody just got caught up in the boomer retirement craze and overbuilt, maybe it wasn't by design at all. Still, the only solution is to increase the number of immigrants to this country. All I have got to say is that it's a good thing "me rike stir fry rice."
Bigoted comments aside, I don't think one has to worry about a huge influx of foreigners. American immigration patterns follow a rough, long-term cycle. There are periods of relatively high immigration (per population) that also tend to include new ethnic groups in disproportionately large numbers. Such periods were:
1745-1775 Scots & Scots-Irish
1840-1860 Irish & Germans
1890-1920 East & South Europeans
1970-NOW Latin Americans
However, each of these periods, before now, were followed by a period of relatively lower immigration (sometimes much lower) and assimilation/integration.
Indeed, one reason why we can look back at the great "Ellis Island" immigration as such a success was BECAUSE IT WAS STOPPED. We had several decades to absorb the newcomers. Without each of these integrative periods America would have faced social and demographic chaos. With these periods, America was able to enjoy the positive economic and cultural stimulation such immigration can bring.
It seems very likely that America is turning toward another assimilative period. The nation's overall tolerance for high immigration is spent and the long term mood has changed. Circa 2040, cultural stability and stagnation will probably force it to turn back.
bl, I hear ontario has itself a full-fledged tent city:
http://news.yahoo.com/s/nm/20071221/lf_nm/usa_housing_social_dc
Thank you, REIC.
"bl, I hear ontario has itself a full-fledged tent city"
Tale of two cities in the Inland Empire. Go by the new Victoria Gardens north of Ontario Mills and just gawk at the amount of concrete and single business dwellings that dot the I-15 as you make your way up to yet another mega retail complex.
Folsom is alright.... but they have better food in quentin! http://www.fakepaycheckstubs.com
Immigration also depends on perceived economic opportunities. The U.S. actually experienced net outward migration during the Great Depression. I don't believe that has happened since then, but if things get bad enough, it could happen again in the not too distant future.
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