This is a guest post by Larry Littlefield.
https://larrylittlefield.wordpress.com/
Compared with other types of commercial real estate, brick and mortar retail had been in crisis for years even before the coronavirus hit. The average compensation of most U.S. workers has been falling for decades, offset by rising public and private debt, and after 2008 consumer spending finally began to follow, as those debts no longer covered the difference. Dollar stores became one of the few sources of retail growth. Then e-commerce started taking a rising share of whatever consumer buying power was left. But even before that suburban and Sunbelt America, built after WWII, were thought to be “overstored” as a result of decades of local zoning policies that favored commercial tax “ratables” that provide property and sales tax revenues, but sought to exclude multifamily housing that might attract less-well-off people, whose local service needs exceeded the local taxes they paid.
http://cityobservatory.org/whos-vulnerable-to-retail-retrench/
The national average is about 46 square feet of retail space per capita, with most metropolitan areas having between 40 and 55 square feet per capita…By global standards, the U.S. has much more space devoted to retailing than anyone else: comparable estimates for other countries include: 23 square feet per capita in the United Kingdom, 13 square feet per capita in Canada, and 6.5 square feet per capita in Australia. If the experience of these countries is any indication, it’s a good bet that there’s lots there’s still lots of room for downsizing in the U.S. retail sector.
Before the virus hit the real estate industry was responding with a burst of innovation, shifting space from retail stores selling goods to service establishments selling health care, entertainment, dining, and exercise. Along with housing, where permitted. Then the coronavirus shut down many of these alternatives. So now what?
Break
I would argue that the future of retail space in cities and suburbs alike may be foreshadowed in the retail past of cities and small towns that had been left behind in the suburbanization era, forty or even sixty years ago, back when average incomes were as low as they are going to be (for those born after 1957) going forward. With lower incomes, rising taxes, and the need for generations who will someday get radically diminished public old age benefits to actually save for retirement, there will be less consumer spending overall.
But that doesn’t have to mean widespread retail space abandonment. Instead there could be lower sales per square foot of commercial space, less employment per square foot of commercial space — and lower rents per square feet of commercial space. Existing investors will lose money, as the value of most retail property falls to the residual value of the buildings themselves, at replacement cost less depreciation and the minimum investment required to turn it into something useful to someone. And local governments may have to become for flexible about the way spaces can be used, allowing lower value activities that pay less in taxes. Greater affordability, however, will open up new possibilities – and restore old ones. As new development slows, the demand for space and place cannot be understood separately from its price.
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We’ll start with a type of retail space that was thought to be in decline 60 years ago – urban and small town street storefronts. In New York City, the designers of the city’s current zoning system had declared this type of retail obsolete and in excess supply in 1958. Consider the 1958 report from consulting firm Voorhees Walker Smith & Smith, Zoning New York City, which formed the basis of New York City’s current zoning resolution, passed in 1961.
https://archive.org/details/zoningnewyorkcit00voor
Page 11: It is now a commonplace that both the downtown shopping district and the local string street have been adversely affected by these innovations in retail trade (resulting in) the excessive amount of retail frontage in the numerous strip developments of the city. A survey of frontages in sixteen shopping districts in widely scattered parts of the city indicated an average retail vacancy rate of nine percent, with an additional six percent of store frontage occupied by non-retail uses.
The 1961 zoning resolution drastically reduced the area where new retail buildings could be developed, and assigned most of the remaining commercially-zoned frontage exclusively to high-traffic retail shops, excluding lower traffic service businesses. That mirrored the management of suburban shopping centers.
Page 108: Experience with shopping centers has demonstrated that stores which attract customers who are in turn prospects for adjacent retail establishments are highly beneficial to the entire commercial concentration or center.
Other activities were banished to limited areas. In today’s New York City, therefore, many types of small businesses are legal on one side of a street, but illegal on the other – and the distinctions have nothing to do with the actual distribution of businesses today.
So what has happened to the number of consumer-driven businesses in New York City, then compared with now? County Business Patterns data from 1962 and 2018, with some adjustment to account for the changes in industry classification, provide an idea.
Spreadsheet
The data shows that NYC had more small (1 to 19 employees) retail and service establishments per 100,000 residents in 2018 than it had in 1962. The number of Retail Trade establishments did fall from 432 per 100,000 people to 375. But the number of Accommodation and Food Service establishments (the vast majority being food service) increased from 160 to 236, and the number of establishments in the Other Consumer Services category (personal, repair and non-profit) increased from 262 to 296.
The increase is even more dramatic for establishments with 20 or more employees. The number of Retail Trade establishments in that category increased from 20 per 100,000 residents to 39, with the number of Accommodation and Food Service establishments rising from 17 to 62, and the number of Other Consumer Services establishments rising from 16 to 19.
Finally, looking at employment per 100,000 residents, Retail Trade was flat at 3,962 in 1962 and 3,955 in 2018, with Other Consumer Services up slightly at 2,052 vs. 2,399, and Accommodation and Food Services up substantially from 2,162 to 4,637. Long term, retail space has been absorbed by a big decrease in food cooked at home, and an increase in spending on food cooked by others.
The big zoning change from 1961 to the present was an attempt to prevent new retail centers from being built in manufacturing zones. In 1974 competition for sites, rather than labor cost and taxes, were blamed for the decline of manufacturing in the city. Since relatively few new shopping centers have been built since 1962, those on Staten Island aside, and the population increased by 7.9%, from 7.78 million to 8.4 million, that means more establishments and activity were trying to squeeze into a relatively fixed stock of storefronts. So the increase in commercial establishments and employment, in excess of the increase in population, mostly took place in the same spaces and areas. Those spaces were used more intensively, became more crowded, and had higher rents.
Most of the big increase in rents and sales per square foot took place in the past 20 years. Think back to the 1980s. Back then NYC had just two shopping districts with high-end stores catering to the wealthy, on 5th Avenue south of 60th Street and Madison Avenue North of 60th Street.
The World Trade Center had a middle class shopping center, not a high-end shopping center.
http://www.labelscar.com/new-york/mall-at-world-trade-center
The Mall was made up of many popular typical mall retailers, including Sam Goody, The Limited, Express, Structure, Warner Bros. Studio Store, J Crew, Banana Republic, Ann Taylor Loft, and the list went on. The Mall also had service-oriented and convenience retailers such as Duane Reade drug store, and several fast food establishments.
Many of Soho’s ground floor spaces were still in light industrial use, or were empty. There were still businesses selling and servicing industrial sewing machines nearby.
Unlike the SoHo of today, with stores, salons and restaurants from corner to corner, at the time, Bicycle Habitat was one of only two retail stores on the block. The street was awash with junkies going to and from the methadone clinic; the buildings were fairly empty, the manufacturing was leaving, and the “white plight” had gripped the city.
In Tribeca, Chambers and Warren Streets had whole blocks of stores selling goods that were overstocked, slightly damaged, or otherwise impossible to sell in regular stores, at bargain prices.
https://www.nytimes.com/1992/12/11/arts/chambers-street-bargains-and-bagels.html
My favorite was the World of Damages, not far from Damages!, Job Lot Trading, and similar stores.
The Bowery was occupied by independently owned lighting stores. And if you needed underwear, it was still cheaper to get on Orchard Street than in any suburban shopping mall or superstore, or on the internet, which did not yet exist.
https://ny.curbed.com/2017/11/16/16665922/lower-east-side-orchard-street-gentrification-photos
Nassau Street in former Financial District was occupied by locally-owned stores. It was possible to buy children’s clothing at “WeBeKids” on the second floor of a prime corner. Manhattan retail rents were low enough for recent immigrants to create a Koreatown on 32nd Street and a Little India on Second Avenue, with basic goods affordable to other recent immigrants.
In Williamsburg, Brooklyn, retail space was so cheap that many artists rented ground floor space for studios, living in the back room and working in the front room behind the glass display windows. Just as others had occupied “live-work” quarters in industrially-zoned Soho.
In my neighborhood, space was so cheap that a couple rented a small storefront that they only used half the year, selling soft-serve ice cream. During the winter they locked it up and operated a similar establishment in Florida. The pizza shop we still order from today was closed on Sundays. There wasn’t enough demand to keep it open that extra day. Immigrants were opening independent stores and service establishments, gradually expanding elsewhere in the borough, and in Queens.
Fast forward to the late 2010s, and many of those lower rent, lower traffic, lower price point, independent businesses were gone, and few new ones had taken their place. There was very little ground floor space within ten miles of Union Square where new independent businesses selling affordable goods and services could afford the rent.
The new World Trade Center was occupied by high-end stores selling expensive goods, and expensive restaurants. So was Brookfield Place, the new Battery Park City. And Soho. And Tribeca. And the new Hudson Yards development on the Far West Side. And the Time Warner Center on Columbus Circle. And Bedford Avenue in Williamsburg. Since the rich were the only people whose income was going up, all the new retail spaces – and many of stores and eating and drinking places in older retail spaces – targeted them. So did most of the new housing.
So much so that more and more of that space was vacant.
In eight neighborhoods surveyed by the Department of City Planning from 2008/09 to 2017/18, the vacancy rate increased from 7.6% to 9.0% — ironically about the same as the similar survey associated with the 1961 zoning resolution had found in 1958. And the main reason for high vacancy was soaring rents, for space that was built or bought for high prices, and could not be rented for less without the landlord defaulting on its loans.
https://ny.curbed.com/2017/6/1/15725494/bleecker-street-vacancies-hoylman-legislation
High-end companies pushed out longtime, diverse businesses that called Bleecker Street home, and when the newcomers couldn’t get enough traffic to justify the sky-high rents, they shuttered and left the block empty.
More high-end boutiques, including as many as six Marc Jacobs boutiques, packed into the five-block radius surround Magnolia’s. (Landlords converted ground-floor apartments into retail to meet the demand.) Older businesses balked at rent renewals asking $45,000 a month, and the stretch lost everything from book stores to Thai restaurants to antique shops.
But the cupcake tourists weren’t necessarily forking over cash to buy $400 t-shirts.
As the city faces the prospect of lower rents, leading to lower property values, and lower property tax revenues, it is worth nothing that up until a few months ago the opposite was thought of as a crisis.
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How about suburban shopping center space across the country? Data shows that if retail space was oversupplied in 2019, that over-supply goes back a long way – to the commercial real estate development bubble of the 1980s. It isn’t something new. According to data collected by my former employer, inflation-adjusted shopping center rents fell 20.0% from 1980 to 2004 and never recovered.
Proprietary sources that only include large “investment grade” properties aside, data on commercial real estate is limited. The only public source I’m aware of is from the U.S. Energy Information Agency, “Characteristics of Commercial Buildings” series. It is taken periodically, with readily available data for 1986 and 2012 (with more recent data coming soon), and is limited to data for the U.S. as a whole.
Spreadsheet
The data shows that when measured by square feet per person, Mercantile/Services buildings and Food Sales/Services buildings combined had 61.6 in 1986 and 60.6 in 2012 — a slight decrease. The big growth was in Health Care (from 8.8 to 13.2) and Education (from 30.5 to 39.0), with some growth in Public Assembly (from 30.6 to 32.2). The latter category includes community centers, theaters, sports arenas, health clubs and gyms, museums, nightclubs, and funeral homes, among other things.
When measured by square feet per total job in the overall economy, the Mercantile/Services and Food Sales/Services building categories combined had 117.2 in 1986 and 106.3 in 2012, a greater decrease.
While the average person saw their work earnings fall from 1986 to 2012, a combination of a rising population, more workers per household, the richest generation of retired seniors this country is likely to see for decades, and a huge increase in income for those at the top, mean total inflation-adjusted U.S. personal income increased substantially.
When measured by square feet per $1,000 of U.S. personal income (adjusted for inflation), the Mercantile/Services and Food Sales/Services building categories combined had 1.74 in 1986 and 1.24 in 2012, a greater decrease still.
So it does not appear that an excess supply of retail space was created by post-1990 development. It had always existed, in part because new types of shopping centers and stores replaced those that had already existed. The older shopping centers were passed down to independent retailers and non-retail businesses, and eventually abandoned.
Long before e-commerce traditional department stores, and the malls they anchored, had for the most part already been wiped out by large “category killers” (such as Toys R Us) selling one type of good. These specialists were able to offer lower prices and greater selection in their large spaces. In fact, almost all the traditional department stores had already merged into just one company – now called Macy’s – in 1994, and virtually no new malls have been built since.
Sears has been going bankrupt for decades. The website DeadMalls.com launched in the year 2000.
The category killers located in so-called “power centers” consisting of a series of “big box” stores owned by one of the two or three dominant national chains in each category. Starting with the Great Recession, however, the remaining growing national retailers – WalMart, Target, Wegmans, Costco, Etc. – started building their own freestanding large stores outside of shopping centers. That led to additional shopping center vacancies, and some demolitions. But overall retail space expansion has been limited.
Consider shopping centers in another city, Tulsa, Oklahoma. Since 1990 two shopping centers — the former Southroads in Midtown and the Forum downtown – have been converted to non-retail uses. The Eastland Mall closed, and is abandoned. Only one major shopping center, a power center called Tulsa Hills, opened on the previously neglected west side. Aside from some freestanding stores added, that’s it for three decades – even as the metro area population increased.
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So excess supply is not a new problem. Nonetheless, brick and mortar commercial spaces are facing a downturn on the demand side, for three reasons.
First, worker incomes continue to fall, and future retirees will be living on less than past retirees. The Millennials were already paid 25 percent less than Baby Boomers had been paid at the same age.
And the coronavirus will likely drive work earnings and savings for old age down further.
Companies across the U.S. are cutting salaries as they fight to survive the coronavirus, upending a key assumption in modern economics and raising another hurdle to rapid recovery. The hard numbers won’t be in for months, but anecdotal evidence is piling up. On earnings calls, big businesses including The Container Store Group and Lyft have cited what they say are temporary salary reductions. Federal Reserve officials also have found plenty of supporting evidence.
The pandemic has triggered unemployment on a scale not seen since the Great Depression. Pay cuts for Americans who’ve managed to hold onto their jobs may hobble the return to normal. People will have to use a bigger chunk of their income for fixed obligations such as housing and other debts — leaving less for the kind of spending that can help spark the economy back into life.
Salary cuts billed as temporary could easily end up as a more permanent feature of payrolls, with employees finding they’re expected to work for 10% or 20% less than before, according to Gregory Daco at Oxford Economics.
Second, given those lower incomes most Americans simply cannot afford to eat out as much as they have in the recent past. And the coronavirus shutdown may have forced people to learn how to cook their own meals, a skill that had been lost in many families. In 1960, according to the Historical Statistics of the United States (I happen to have a copy), purchased meals and beverages accounted for just over 20.0% of total expenditures on food and beverages.
https://fred.stlouisfed.org/release/tables?eid=44183&rid=53
By 2019 that had risrn to 45.5%. With more multi-worker households I wouldn’t expect a full retreat to the level of 1960, but lower incomes mean it is likely that even after social distancing is no longer required, consumer spending on food services will fall.
Third, some portion of retail goods distribution will turn out to be done more efficiently and cost effectively through e-commerce than by having consumers travel to physical stores. While the eventual e-commerce market share is uncertain, it had been growing slowly toward whatever that share will turn out to be.
As a result of people staying at home due to the coronavirus, however, it may be that over the next two years e-commerce will grow larger in the short run than it will actually turn out to be in the long run, creating even more pressure on physical stores. By the time some portion of consumer demand is ready to return to those stores many large national retailers, and even more local retail and service businesses, may no longer exist.
But that doesn’t mean nothing will take their place. Because there are far more businesses and types of businesses that are viable at $8 per square foot per year than at $80, at $12,000 per year for a 1,500-square-foot storefront than $120,000. And while lower incomes might reduce the demand for some types of goods and services, it could increase the demand for others. If the economy continues to struggle, the throw-away economy of the past 20 years may no longer be affordable, something that may apply to buildings as well as the goods and services sold in them.
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Start with New York City, and other cities that had been booming until recently. Lower rents might make it possible for the types of businesses present in the 1980s to make a return.
Independent businesses selling damaged goods, surplus goods, and used goods, for example. Repair shops reconditioning the latter. Repair, in fact, might become a growth industry if de-globalization means it is no longer possible to buy new consumer durables for less money than it takes to repair old ones. Lower incomes could drive the trend, but so could environmental principles. Does it really make sense to throw away articles of clothing after they were worn only a few times? To throw away electronic products every three to seven years, instead of just replacing a few components?
https://www.youtube.com/watch?v=lj2fLUhvaJ4
There had been a boom in used and rented goods stores for poorly paid millennials even before the latest recession, despite high retail rents. That trend could expand.
Soaring rents had made it more difficult for charter schools, and independent pre-schools, to find locations. Lower rents might make it possible for more of those to open. One possible response to a growing state and local government fiscal crisis, and its impact on public education, is homeschooling co-ops. Instead of locating in the parents’ apartments, however, if the rent were low enough storefronts could be rented, and such co-ops could move out of the homes. Former restaurants with restroom (s) and a commercial kitchen might be ideal.
Former restaurants might also be ideal for party rooms. New York City is an extremely expensive place to have a large gathering such as a wedding reception, because the rents are too high for facilities that are generally only in use two days and three nights per week. If rents fell low enough, however, it might become affordable for people living in small apartments to host parties for friends in such rooms, even after they were married.
Urgent care centers were already moving into NYC storefronts before the coronavirus hit. The New York City zoning resolution allows physician’s offices to be located in residential zones. But if commercial space were cheap enough, more health care establishments could migrate to commercial streets, leaving the apartment-offices to be converted to apartments. That would indirectly increase the housing supply.
With small city apartments, the internet-driven shift of more and more activity – working, shopping, entertainment and recreation – to the home is more difficult. Instead, some of that activity could shift to lower-rent storefronts near the home. A retail storefront could be divided into eight or ten office cubicles, with enough space between them for social distancing. And instead of a table tennis set in a basement or garage, there could be a set of them in a former health club, rented by the hour.
And speaking of garages, one of the barriers to widespread bicycle transportation in New York City is bicycle parking. In every neighborhood one can find rusting bicycles chained to signs, owned by those who can’t fit them in their apartments. While one can’t fit a motor vehicle parking garage in an abandoned storefront, however, a bicycle parking garage could fit easily. And given the density that vertical bike racks allow, a rent of $10 per month per bicycle could get a landlord $30 psf in rent. Bicycle parking garages could be operated by a bicycle transportation clubs or co-ops, with shared repair tools and tips and events, in addition to parking. Perhaps even shared bicycles.
For these types of low-rent, low traffic, low margin businesses and other organizations, to open, however, someone would have to be willing to create them, and be satisfied with the living they provided. But the lower work average income of later-born generations – and lower residential rents – might make operating a small business more attractive. A few years ago in San Francisco, a retail broker noted:
http://www.starboardnet.com/news_research_viewarticle.php?nr_id=521
No one is discussing the number one reason that is causing such a high vacancy in our neighborhood retail – and that is our low unemployment rate. Historically, we have experienced our lowest retail vacancy rates when unemployment is high– not low. People go into business for themselves when they can’t find work.
Most of our retail is old, small ‘mom and pop’ shops that opened between the 1930’s – 1960’s. During the 1930’s, we were faced with a depression. There were no jobs, so people opened up shops to make a living. After World War II, the soldiers that came home from the war and no jobs available to them, so they open the small neighborhood markets, liquor store, 5 and dime stores and restaurants.
When Asians fearing the transfer of Hong Kong to the Chinese starting in the 1970’s began moving to San Francisco and opening up shops in vacant stores that became available when the previous merchant saw their kids not interested in their businesses and were able to get jobs in the marketplace.
Today with our low unemployment rate, there is a very small pool of potential local tenants that would want to risk opening their own business when they can easily get a secure job with benefits instead. Furthermore, with a $117K ‘low income’ threshold (because of soaring housing costs), small store owners have very little chance of making enough money to survive.
If residential rents fall, if commercial rents fall, if actual jobs continue to be replaced by faux “freelance” and “independent contractor” positions with all the insecurities of business ownership but none of the free choice, that may change.
How low will retail rents have to fall to regain occupancy? Perhaps all the way to zero. I expect future landlords will have to, in effect, enter into partnerships with their tenants, and accept rents that are a percentage of sales or receipts, with perhaps a minimum to be a achieved within a year of opening, and a maximum.
A number of retailers are already asking landlords to waive some of their rent in return for a share of future revenues. Ross Stores Inc. said last month that it would pay a rent equivalent to 2% of sales when its stores reopen. Guesst, a New York-based technology company, recently launched software to help retailers and landlords manage revenue-sharing arrangements.
Lease alternatives can come in many forms. Some firms sign deals that include a few years of revenue sharing upfront, followed by a period of fixed rent payments. Other deals include a low monthly rent, topped off by a share of revenue. Still others include no rent at all.
These arrangements aren’t all new. Hotel and mall operators have had them for decades.
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What will happen in suburban and Sunbelt America? There, large corporate landlords are used to doing business with large corporate retail tenants operating dozens, hundreds, or thousands of locations. It’s a lot less work. Instead of vetting a business plan and would-be entrepreneur, the landlords could rely on the tenant’s SEC filings and get their credit ratings. And no matter what happened at one location, the rent would be paid with money earned in the other locations. National chains had been replacing independent businesses not because they offered lower prices, better service, better wages, or even higher rents. But rather because they offered a lower-effort, lower-risk return to large-scale landlords who saw their properties as financial instruments, not buildings.
The large-scale retail bankruptcies of the past two decades – and the past four months – may have turned that on its head. Corporate retailers are refusing to pay rent even when they could afford to do so, something few independently-owned businesses would try. And growing retailers are increasingly located in freestanding stores, where they don’t have to worry that stores which attract customers who are in turn prospects for adjacent retail establishments, as in a shopping center. The Walgreens, Walmarts, Targets, Costcos, Wegmans, HEBs, and Dicks Sporting Goods want to capture all that consumer spending within their own walls.
So large-scale retail landlords will either have to get creative, sell to local landlords that are willing to do so, or have their lenders sell to local landlords, after foreclosure. At prices that will allow much lower rents, allowing lower-traffic independent businesses to open. The suburbs, in other words, might become more like the cities once were, and might be again, with more low-rent, low traffic, independent businesses.
One company finding an adaptive reuse for old shopping malls is Amazon, by turning them into fulfillment centers.
The same property ends up servicing the same trade area, but with the goods delivered to the customer rather than the customer picking up the goods. The number of fulfillment centers may continue to rise even after e-commerce’s share of total consumer spending peaks, as new competitors arise to compete with Amazon. In that case lower rents would allow lower sales per square foot for those facilities as well.
Other shopping centers and other obsolete retail buildings could be converted to affordable housing – if the government would just get out of the way. While inflation-adjusted office and retail rents have fallen over the decades, inflation adjusted apartment rents have increased, and very low rent units have disappeared.
The problem is zoning. Restrictive zoning is the one anti-poverty program that enjoys widespread local support in much of the country. It helps reduce local poverty by forcing the poor, and even non-poor people whose incomes are lower than those residing there now, and even the next generation of people who grew up it town, to go somewhere else. So someone else would have to pay for their local services, and deal with their problems.
https://granolashotgun.com/2020/02/06/grass-roots/
Despite these incentives slowly, against opposition, shopping center owners were getting local approvals to add new apartment buildings to their properties.
Conversions would be cheaper. Take an abandoned fast food restaurant. It has a roof. Heating and air conditioning. Water and sewer pipes. Electricity. Restrooms. A commercial kitchen. Add a couple of showers, additional electric outlets, and some partition walls, and you have single room occupancy housing with shared facilities. Would anyone want to live that way? Yes, at a cost of $250 per month.
In New York City, and most cities where rents have soared in the past two decades, young adults were forced to pay far more than that to live with roommates who shared kitchens and bathrooms. In the New York City of 60 years ago, in contrast, one not only found artists and “artists” living in minimally upgraded obsolete industrial and commercial buildings, but also mentally ill, poor and troubled people living in single rooms in obsolete hotels. Today there may be lots of obsolete commercial buildings and hotels in suburban and Sunbelt America.
The U.S. Energy Information Agency had estimated U.S. had 19 billion square feet of Mercantile/Services and Food Sales/Service space in 2012. Imagine 1 billion square feet could no longer be rented to businesses, even at low rents. It could be abandoned. But given some modest investment and limited requirements – only those absolutely required for health and safety – it could also be used to provide 2.5 million people with 400 square feet of housing each. It wouldn’t take a big government program, or extensive government spending, or any government spending at all. It would just have to be allowed.
The way it was allowed in urban and small town America 60 years ago, as people were leaving those areas to move to the suburbs and the Sunbelt. There wasn’t very much homelessness then, even among the poorest and most troubled. In large part because there were trailers for sale or rent, and two hours of pushing broom was enough to pay for an 8 by 12 four-bit room.
https://www.youtube.com/watch?v=WrhAC0dFis0
In places where the population is growing, in places where the population is stable, even in places where the population falls by a moderate amount, space can be re-used if it is allowed to be reused, and if it is passed down to new owners at lower prices. It is just a matter of existing investors taking their losses, and new investors taking their place.
