An Analysis by Barbara Byrne Denham
STILL NO EVIDENCE OF THE INEVITABLE RETAIL SLIDE
The pandemic and subsequent shutdown were fully underway at the start of the second quarter, but retail properties showed little impact as most tenants paid their rent despite having no foot traffic. As a result, the retail vacancy rate was unchanged in the quarter at 10.2% while the average asking rent and average effective rent fell 0.5% and 0.6%, respectively. The mall vacancy rate increased only 0.1% in the quarter, and mall rents declined 0.9%. However, we fully expect the retail market to suffer more so in the second half of 2020 as a second surge of COVID cases has extended the social distancing orders and kept many from entering stores or restaurants.
The retail sector had been on a downward trajectory before the virus forced many to temporarily shutter their doors. The coronavirus served as a “kick” while the market was already down, and now the second surge will act as a second kick to an ailing market. A number of prominent retailers announced store closings and bankruptcy filings in the last few weeks including Bed, Bath and Beyond, Lucky Brand, J. Crew, GNC, and Neiman Marcus. Indeed, the pandemic will hurt the retail sector significantly more so than every other property type and more permanently given the already shaky ground that the sector had been on. Even as the economy reopens, many will maintain social distancing, particularly in restaurants that can sustain outdoor dining operations for only so many warm weather months. Even beyond the next few quarters, social distancing could remain in our subconscious for months…
Barbara Byrne Denham is a Senior Economist in the research and economics department at REIS, the team responsible for the firm’s market forecasting, valuation, and portfolio analytics services. Throughout her 20-year career, Barbara has written a number of white papers on the commercial real estate market.