Daily mortgage rates news reports on issues that affect the current real estate market as well as the overall economy.  Today’s article dives into the possibility that the real estate collapse will send the economy in another downward spiral.

As reported on Subprime Blogger way back in December, the commercial real estate collapse is inevitable.  Corporations are not willing to pay the high cost of rent when many of their business can be run out of homes or low rent buildings.  When driving through many major cities, you will notice that a substantial amount of skyscrapers are almost completely empty.  When you can see completely through a building and notice that their are no tenants, that is a sign of things to come.

Many rental units in major cities are seeing a decline in rent value as most major corporations are asking for lower rent or they are willing to close their doors or move.  Rite Aid and Starbucks are two major United States corporations that are willing to close locations if their rent is not reduced by at least 25%.  This is very bad news for everyone involved.  It is bad news for the major corporations because they have obviously been paying way too much in rent in recent history and they are likely to shut their doors on some high priced locations.  It is bad news for the individuals who own the properties because the value of their land and building have plummeted with this recession.

The property owners have one of two choices.  They can reduce the rent and hope that they create a figure that is accepted by the corporations or they can let the companies shut their doors and move out.  Several Rite Aids have closed throughout the country and much of it has to do with the high cost of real estate.  If Rite Aid is paying $40,000 a month to rent a premier corner and that particular store cannot turn a profit, they have no other options than to ask for lower rent or completely remove that store.

This is going to greatly hurt the retail industry as many people are going to lose their jobs and there will be empty buildings that litter the landscape.  You have probably all been to a town where there are empty drug stores on the corners of intersections and it is not a pretty sight.  Expect to see more of these as all retailers are doing their best to cut costs and reducing rent or closing stores will definitely do that.

Another major area of concern in the retail space is shopping malls, both indoor and outdoor.  Unless a mall is in a premier location and has devoted shoppers, it is likely that many stores are going to start shutting their doors.  Any store that is not part of a major chain is going to greatly struggle to pay rent in a shopping mall.  Retail sales continue to show a downward trend so most companies are forecasting that their sales are not going to pick up in the near future.  If that is the case, they need to decide what an acceptable rent would be to turn a profit.  Unfortunately, some companies would need ZERO dollars in rent to produce a profit and that is obviously not going to happen.

Expect to see many of your common mall stores shut down in the next six to twelve months.  Any retailer that sells an item that is not absolutely needed is going to find it very difficult to “pay the rent” in the current economy.  All high end clothing and furniture retailers are going to have to have a very loyal customer base to get through this troubling time.  There is no doubt that some malls will stay pack and be able to make money, but it will not be the way it was three years ago when malls were being built in every suburb of even mid sized cities.

Many of the buildings that are currenly being rented out were locked in MANY years ago before mortgage interest rates started declining.  I am sure many of the landowners have refinanced and gotten lower rates but even if that is the case, it is still going to be difficult to find tenants that are willing to pay the steep cost of rent when it is extremely hard to turn a profit.

Corporate office space will also see a heavy hit in this commercial real estate collapse.  Companies that had district offices peppered throughout the United States are likely to cut these offices back.  Many retailers have already created a plan to get the district staff in to much lower rent areas, possibly even into the stores in which they manage.  This will not be something that many district and regional managers want to hear, but most companies are willing to do whatever it takes to make money.

If district and regional offices start closing, landlords are going to have to find someone to take over that space.  For the next few years, it is very possible that many of these office spaces will remain vacant until corporations start making money or foresee their outlook as positive.  The only way this will happen is if the recession comes to a close and Americans start spending money again.