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WARNINGS ON ECONOMY VOICED AT WEST MEETING

BY DEBRA HAZEL

Times are good for the shopping center industry, said speakers at this year’s ICSC Western Division Conference & Deal Making, though some voiced concerns about threats to the economy.

With U.S. interest rates still low, employment levels rising and shoppers spending, “it is a great time to be in our industry,” said Patrick S. Donahue, president of ICSC’s Western Division and also president of Costa Mesa, Calif.-based Donahue Schriber. Even a spate of store closings by the likes of Gadzooks, KB Toys, Toys ‘R’ Us and Wilson’s are being offset by store openings, Donahue told the meeting, held last month in Palm Springs.

The U.S. economy will probably grow between 3.5 and 4 percent over the next 18 months, said Gary Schlossberg, senior economist at Wells Fargo Bank, San Francisco. That is weaker than expected for this midexpansion point in the economic cycle, he said, “but we are still a long way from what we see as a recession.”

Mall net-asset values have risen at a handsome rate, said Mike Kirby, a principal and co-founder of research firm Green Street Advisors, Newport Beach, Calif. But the same factors that are boosting business now could also be creating a bubble.

“We are now in a recovery that looks fine on paper, but it depends on who you’re talking to,” Kirby said.

Some businesses remain reluctant to hire, preferring to stockpile cash, he said. Besides this, he added, household debt levels are at all-time highs, while personal savings levels are very low.

“As I look forward, I see an environment that is very risky — much riskier than five or seven years ago,” said Robert Edelstein, co-chairman of the Center for Real Estate at the University of California Berkeley’s Haas School of Business.

Interest rate rises could hurt household income and wealth levels as home values decline, Edelstein said. Among the other possible negatives are global trade and energy issues as well as terrorism, he said. New energy sources will be necessary as increasing Asian demand puts pressure on existing oil reserves. Further, political instability in Argentina, Pakistan, Russia and other places could work mischief on the world economy.

Domestically, the federal budget deficit is a concern, as is the trade deficit and budget shortfalls in U.S. states, Edelstein said.

More than 4,000 retail real estate professionals attended the meeting, a 15 percent increase over last year.