Q&A with Ryan Imbrie, CCIM, Managing Director and SVN Retail Product Council Chair
What’s going on, in general, in the retail asset class as a result of Covid-19?
Retail tenants are experiencing a devastating impact as a result of the COVID-19. With several states and cities requiring residents to “shelter in place”, traditional retail has come to a halt. Major landlords have taken socially responsible routes of closing all their shopping centers to limit the spread of the virus. Restaurants who traditionally only offered dine-in service have pivoted to offer curbside pickup. Grocery stores are the only busy retailers as the panic from the public saw entire aisles cleared of canned, frozen and fresh fruits and vegetables as well as every square inch of toilet paper.
What challenges is retail experiencing in the days and weeks due to Covid-19?
Landlords need to prepare for an onslaught of calls from their tenants in the coming days and weeks where they will hear the reoccurring message that businesses cannot pay rent this month due to their business being closed. Many businesses will not recover from this economic impact so landlords should expect increased vacancy as a result. The reality is that before an owner begins working out rent concessions with tenants to keep them afloat, it is important to speak with your lender first. Lenders recognize the pain that is being caused and may find a way to work with you through these times.
What challenges do you see retail experiencing in the long-term due to Covid-19?
As soon as the COVID-19 virus has run its course, it is expected that retail will rebound but may have a different look and feel. Landlords can expect to have a higher average vacancy as weaker tenants will likely not survive this economic impact. For tenants that are positioned to grow following this disruption, we could potentially find that rents are compressed to incentivize signing new leases.
One area of increased expenses for owners in the future will likely be janitorial. Shoppers visiting regional malls for example will want to know they are in a safe, clean environment where exposure to viruses is limited due to cleaning practices.
What opportunities is retail experiencing in the near-term due to Covid-19?
Existing owners may not want to hear this, but this may become a buyer/tenant market in the near term. With the likelihood of vacancy increase the underwriting and value of retail investment properties will be impacted. Many buyers have sat on the sidelines for the past several years waiting for better values and this may be the time to jump back into the market. Tenants will also be able to lock in favorable terms for new leases as landlords compete to land a strong tenant.
What opportunities do you see retail experiencing in the long-term due to Covid-19?
Long term, we will find that weak tenants have been weeded out of the market. With only the strong surviving, landlords with well positioned properties may have a stronger asset when this is behind us. Retail is constantly evolving and through the COVID-19 impact we may find that landlords who can provide solutions such as improved drive-through pickup of groceries or other products solidify the success of their real estate. Traditional retail will rebound but may have a different feel as people embrace the idea of a larger “bubble” to minimize exposure. Creative owners and developers can poise themselves for success by factoring in these new boundaries.