BLOG VIEW: The U.S. Postal Service (USPS) is facing its greatest financial problem ever, and part of its drastic cost-cutting efforts includes the possible shutdown of at least 3,700 of its retail offices. Most people do not think of the USPS in terms of real estate, but its operations are extensive – it currently operates roughly 35,000 facilities that cover a combined sum of more than 300 million square feet.
The USPS decision to jettison a significant percentage of its commercial portfolio may alleviate some of its financial problems, but this action creates significant new problems in the commercial real estate (CRE) sector.
For starters, the very last thing that the CRE sector needs is 3,700 more vacant retail properties around the country. The retail industry is barely keeping its head above water – July's puny 0.5% sales increase was the industry's largest gain since March – and it is unlikely to imagine that major retailers are going to rush to create new outlets in former postal facilities.
Complicating matters is the location of the facilities targeted for closure. According to the USPS, most of these properties are located in cities, which will further aggravate problems facing urban CRE markets. A casual drive down the main avenues in many cities will locate a large number of empty retail spaces, and struggling municipalities can ill afford to have more retail vacancies.
This situation also calls into question a related concern: the impact of the federal government's CRE downsizing on municipal economies. Take the example of Atlanta. Last month, the turnaround management firm Anderson Bauman Tourtellot Vos issued a report that said Atlanta's ailing CRE market would be harshly impacted if the federal government jettisons a healthy percentage of its 8 million square feet of office space in the city and its surrounding region.
In May, Federal Reserve Bank of Atlanta President and CEO Dennis P. Lockhart gave a speech that warned that Atlanta's CRE sector was being hampered by high unemployment. ‘Weak job creation and employment growth are constraining demand for office space,’ he said. ‘Atlanta office vacancy rates remained above 20 percent in the first quarter, according to CB Richard Ellis.’
Ironically, CB Richard Ellis signed a contract last month with the USPS last month to help the ailing agency determine which properties need to be sold. No specific timeline has been set regarding when the possible property shutdowns will commence.
Of course, this is not just a case of empty buildings – we cannot forget the people who are currently working in these postal facilities. The USPS is looking to cut 20% of its workforce – it claims that it can only afford to pay for 425,000 workers by 2015.
Thus, it is possible that we can expect a near future where a higher number of unemployed individuals will be looking for work in cities pockmarked with an increased number pf vacant commercial properties. And it will not be difficult to imagine many of these newly unemployed people having problems paying the mortgages on their homes – which, naturally, takes us on another spin on the real estate catastrophe carousel.
However, things may not turn out as bad as predicted. The USPS' numbers are not chiseled in stone, and it is possible that a large number of facilities and employees will not be jettisoned. And more than a few elected officials in Washington are already trying to pressure the USPS to maintain as many postal facilities as possible in their states.
Nonetheless, I sincerely hope that the USPS takes a long and hard look at what is being proposed. Considering the collateral damage it will create by trying to preserve its financial health, this plan needs to be stamped ‘return to sender.’
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
