Regardless of Regular Q2, ‘Darker Clouds Forward’ Predicted for Retail

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Despite Steady Q2, 'Darker Clouds Ahead' Predicted for Retail

Retail properties remained stable through Q2 2020, but according to a new analysis, vacancies are likely to rise and rents to fall as the pandemic continues to affect the retail industry heavily.

Barbara Byrne Denham, a senior economist in the research and economics department at Real Estate Information Services – a branch of Moody & # 39; s Analytics – wrote in a report that the retail sector will take up nearly 46 million square feet in 2020 and an additional 11 million square feet the following year.

"This will increase the vacancy rate to 12.6% by the end of 2020. It is projected that rent declines will decrease by a total of 8.1% (demand) and 11.2% (effective) by the end of 2020," Denham wrote.

The report said that these “strong numbers reflect a market that has already been in decline” and that a pandemic will certainly hurt retail disproportionately compared to other sectors, “given the already shaky soil the sector is on found.

"Even if the economy opens again, many will maintain social distancing, especially in restaurants that can only dine outside for so many months of warm weather," Denham wrote. "Social distancing could stay in our subconscious for months beyond the next few quarters."

The report found that in every metropolitan area, rents for neighborhood and community shopping centers fell, with vacancies increasing in only 24 countries, and all by less than 1 percent. Denham attributed this to largely negative net absorption from retail space, pointing out that 34 of the regions had positive absorption in the most recent quarter, compared to 46 metros with negative net absorption.

Denham also noted that the mall vacancy rate rose just 0.1 percent to 9.8 percent, a ten-year high, last quarter, and that the average mall rent fell 0.9 percent to $ 43.70, after these rents had increased in recent years.

"In addition, individual reports suggest that malls will suffer more than neighborhood and community malls as older department store anchors close in droves," she wrote, referring to Macy's announcement to close 125 stores this year.

And Denham also noted that malls have leased more space to “experimental” businesses that are struggling due to shutdown orders issued about the pandemic and therefore could lead to more vacancies.

"Now that the US is hit by a second surge in COVID cases and authorities resume social distancing measures, the retail market could continue to suffer for the next few quarters until a vaccine is developed," Denham wrote. "While the $ 2 trillion CARES stimulus package has helped many get through in the past few months, without an expansion of benefits, many will permanently lose their jobs and cut more discretionary spending, bringing even darker clouds to retail. "

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