Page 58 - The Economist20171214

58 Business The Economist December 16th 2017
Retail property which have shops connected by a carpark, Corporate tax in America
ceptible to e-commerce—most Americans Let the games
Vacant spaces often have a supermarket, so are less sus-
still buy food in person, at least for now.
Whatwill happen to retail properties as begin
stores shut is on the minds of city authori-
ties. Other types of companies may fill va-
NEW YORK cant space in larger cities. In October Hud-
The global propertybusiness tries to son’s Bay, a retailer, said it would sell its NEW YORK
adapttoe-commerce America Inchas concerns on taxreform
Lord & Taylor department-store building
IFTH AVENUE in New York is the most on Fifth Avenue to WeWork, a shared-of- RESIDENTDONALD TRUMP’Seffortto
Fexpensive stretch of retail property in fice firm, for $850m. Mall owners hope to Pchange America’s tax code is approach-
theworld,nowfestoonedwithlightsinthe find new tenants from service industries ing the finishing line. Republican negotia-
approach to Christmas. The pavements such as restaurants and gyms. Retailers tors from the Senate and the House of Rep-
heave with crowds eager to see the dia- such as Bonobos that once sold clothes resentatives this week hashed out a
mondssparklingatTiffany&Co,ajeweller, only online are openingmore shops. consensus bill behind closed doors. On
and festive displays at Saks Fifth Avenue, a Biggergroupsarebetterplaced to spend December13th, Mr Trump expressed confi-
department store. But storefronts further on the best malls and sell others. Unibail- dence that he would be able to sign the re-
downtown in once-thriving shopping dis- Rodamco’s plan for its American shopping form into law before Christmas.
tricts remain vacant. malls is to “focus on improving them, ride The key provision is the slashing of the
The global retail property business is out the storm and see where we go from corporate taxrate, from 35% to 21%. Bigbusi-
having to adapt as consumers spend more there,” said the company’s chief financial ness in America uniformly cheers this re-
online. Consolidation is in vogue. On De- officer this week. GGP in October an- duction. The US Chamber of Commerce
cember 12th two retail property compa- nounced an agreement to add flats to a calls it a measure to “grow the economy,
nies, France’s Unibail-Rodamco and Aus- mall in Seattle; Sandeep Mathrani, GGP’s create jobs, and increase paychecks”. The
tralia’s Westfield, agreed to merge in a deal boss, wants to make retail centres into TaxFoundation, a right-leaningthink-tank,
worth $24.7bn to form the world’s second- “mini cities”. Other property companies claims that reducing the corporate rate to
biggestownerofshoppingmallsbymarket face more of a challenge. CBL Properties, 20%, just one percentage point lower,
value. Westfield earns about 70% ofits rev- for instance, owns malls in smaller Ameri- would increase the size ofthe economy by
enues from property holdings in America. can cities that have less shopping traffic. 2.7% over the long run. Yet big firms are less
In November, Brookfield Property Part- CBL’s share price has fallen by more than enamoured of controversial international
ners, another mall owner, bid $14.8bn for 50% this year, making it harder to invest provisions that may make it into the final
the 66% of GGP, a rival, that it did not al- and turn around ailingspaces. law. Both the Senate bill and the House bill
ready own. Two activist investors, Third As the property market evolves, at least try to stop the shifting of profits by Ameri-
Point and Elliott Management, took stakes one type of investor can be unequivocally can multinationals (MNCs) to affiliates in
in two others. They are among several in- cheerful. Vacancies for industrial real es- lower-tax countries by imposing some
vestors to recognise that change is hasten- tate, including e-commerce warehouses, form of tax on cross-border transactions
ing, as many retail properties labour and are at their lowest rate in three decades. between business units.
others discoverbrighterprospects. Prologis, the biggest owner globally of MNCs, both American and foreign,
Location, as ever, is key. In France and such property, has seen its share price worry that such measures will throttle glo-
the Netherlands, as elsewhere, retail prop- jump by nearly 20% this year, while other bal supply chains. A trade association for
erties in smaller cities are struggling while property firms’ value has remained flat. 7 foreign carmakers with operations in
those in big ones thrive. Well-known thor- America callsthe reform effort“highlypro-
oughfares can attract luxury-goods firms blematic.” America’s big trading partners
that like having flagship stores to advertise are also concerned. This week, finance
their brand. One example is New Bond ministers from five European countries
Street in London, which is booming. Rents wrote a joint letter to Steven Mnuchin,
jumped by 34% in the year to June, accord- America’s treasury secretary, warning that
ing to Cushman & Wakefield, a property- the proposalscould violate taxtreaties and
services firm. But even prominent streets rules ofthe World Trade Organisation.
in some places are experiencing a correc- Yet the Republican leadership will
tion in prices. In Hong Kong rents in shop- move heaven and earth to forge an agree-
ping hubs have slipped along with rates of ment—however imperfect—before Christ-
visitors from mainland China. mas. Republicans have only a slender ma-
In America, which has about five times jority in the Senate. The taking of a Senate
as much mall space per person as Britain, seat in Alabama by Doug Jones, a Demo-
“there is a huge bifurcation”, says Todd Ca- crat, on December12th (pending a possible
ruso of CBRE, a brokerage. Some areas and recount) suggests that the best hope for Re-
certain types of properties are expected to publicans is to strike a deal before he takes
fare well and others to slump. Atlanta and office early next year.
Orlando are among the cities particularly The final detailsofthe consensus billre-
saturated with stores, with only paltry lev- main uncertain, but two things already
els of disposable income and retail sales, seem clear. First, whatever law is passed,
according to Green Street Advisors, a prop- lobbyingwill continue. The last such effort
erty research firm. These will probably see of a similar scale, the tax reform of 1986,
more shop closures. Enclosed malls are was the result ofyears ofworkand biparti-
usually filled with department stores such san consensus. That comprehensive law
as Macy’s and other clothes retailers that stood the test of time. In contrast, this
are all closing outlets. But strip malls, Stores of value year’s rushed effort seems likely to leave 1