A friend of mine recently lamented about her beauty saloon's drastic 35% to 40% traffic decline, and yet shopping center landlord had refused to re-negotiate the rent.
It is becoming much harder for small business owners to garner any profit with rents eating up most of the revenue. Many retail outlets in the same center has closed in the past 12 months with the dearth of customers. The same story of small business owners are being echoed throughout the country. Vacancy rate of strip malls is reaching historic high with many retail anchor stores disappearing so quickly: the bankruptcy of Mervyns and Linens 'n Things, and the likes. Remaining companies are trying to preserve cash by switching to survival mode: closing down money losing locations, stopping all expansion plan, trimming down inventory and selection.
Commercial properties in San Diego Metropolitan are reporting 15% to 20% vacancy rate for the second quarter of 2009, reflecting high umemployment rate in the area of 10%.
According the latest Wall Street Journal July 20, 2009 issue, Commercial mortgages are defaulting at the highest pace in 20 years : offices, shopping malls, hotels, apartments and other commercial property. Commercial loan losses could reach hundred billions at end of 2009, these loans are hurting many smaller regional banks.
One latest local casualty is Temecular Valley Bank with heavy exposure to regional high risk commercial loans. It has a local branch in Rancho Bernardo area, next to Pho Hoang Restaurant ( one of my favorite ), was just taken over by FDIC and sold to First Citizens Bank this week-end.
While some might detect a glimmer of hope in the green shoots with much publicized stablelization of the residential real estate, the commerical property market contraction continues to wrech havoc on our fragile economic recovery. Bankers and mall operators are battling out for loan modification concessions, falling values of commercial properties make it impossible for banks to assess porfolio risk and quality of income flow.
For many of the small beauty saloon owners like my friend, this has got to the worst of time with falling revenue and ironclad lease contract. What is left to take home ?
