Commercial Investment Real Estate Summer 2020 | Page 23

The COVID-19 pandemic has illuminated
weaknesses, strengths, and areas of
potential growth for retailers of all kinds.
Retailers and landlords reeling
from business closures in
the wake of the COVID-19
pandemic have reignited fears of a
retail apocalypse.
The global health crisis has dealt
a harsh blow to a retail sector that was
already struggling amid pressures from
e-commerce and changing consumer
behavior. Performance within the retail
sector in recent years has been a mixed
bag of shopping concepts that ran along a
spectrum of thriving, surviving, or barely
hanging on. COVID-19 will likely hasten
the demise of those retailers that were already
on shaky ground. In particular, department
stores and mid-priced apparel
and accessories retailers are among those
that face the biggest risks for failure.
Though on a state-by-state basis,
retailers, for the most part, are likely to
be open for business heading into the fall.
However, they will be unlikely be able to
flip a switch and go back to what business
was like before the pandemic, says James
Cook, director of retail research, Americas,
at JLL. Social distancing recommendations
and consumer fears about contracting
the virus will continue to weigh
on foot traffic to stores and shopping
centers in the near term. In addition, by
April, the lockdown dragged the U.S. and
global economy into recession. “Consumers’
recessionary spending is a different
animal, so retailers who were struggling
before COVID are really in trouble right
now,” says Cook.
Prior to the virus outbreak in
early 2020, malls were already sitting
on the highest vacancy rates in a decade,
at 9.7 percent. In comparison,
vacancies within neighborhood and
community centers have held fairly
stable at about 10 percent for the past
three years, with relatively flat rent
growth, according to data from Moody’s
Analytics REIS. The near-term outlook
will depend on the speed of the
economic recovery — CCIM Institute
Chief Economist K.C. Conway, MAI,
CRE, CCIM, is predicting a W-shaped
recession as detailed in this issue’s cover
story (pg. 24). REIS’s worst-case scenario
forecasts negative net absorption of
close to 67 million square feet in 2020
and another negative 24 million sf in
2021, which would push the vacancy
rate to 14.6 percent by the end of 2021.
The global outlook also is grim.
Research firm Forrester is predicting a
9.6 percent contraction in global retail
sales for 2020, which amounts to $2.1
trillion in losses. However, retail remains
a very bifurcated market, and the shutdown
did not impact all sectors equally.
Those essential businesses — including
grocers, wine shops, home improvement
locations, and convenience stores —
remained open for in-store shopping,
while others had to shift to online channels.
“The winners are easy to identify.
When you are out and about with your
day-to-day activities, you can see and
experience how companies are adapting
to the COVID environment,” says Amy
Barrett, CCIM, director of retail and
office services at Colliers International
in Tampa Bay, Fla. Both large and small
companies have found ways to continue
to serve customers in stores or through
online or mobile channels. The losers
are the ones who are over-leveraged,
undercapitalized, and didn’t adapt to
COVID-19 quickly enough, she adds.
WAVE OF CLOSURES AHEAD
The industry is still in a wait-and-see
period, with the reopening of business
likely to continue throughout
the summer and fall. Landlords may
not have an idea of the true damage
until the fourth quarter of 2020 or
the first of 2021. Early fallout from
COVID-19 has already started to ripple
through the industry. Neiman Marcus,
JCPenney, and J.Crew are among those
major chains that filed for bankruptcy
protection in May, and the expectation
is that others, including Stein Mart and
Sears, may not be far behind.
“I have seen some of the impact
firsthand, including tenants packing
up shop with no plans to reopen in response
to the pandemic,” says Lauren
Photos by Getty Images
COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 21