The Pivot – Retail News by Donna Coquilla
Things are changing. Pre – pack administrations, store closures and rent re – negotiations are now the order of the day, and no part of the sector appears immune from the effects of the pandemic.
A new report shows the pandemic had led to various store and salon closures, which is taking its toll on the retail market.
According to CoStar data, distressed property sales have surpassed that of traditional hotel and retail properties — two of the sectors hit hardest by the coronavirus pandemic.
As much of the U.S. goes on lockdown to curb the spread of COVID-19, many in the retail and restaurant sectors are taking a major blow.
During the initial three months of the Great Lockdown, which started in March, retail sales were cut approximately in half, worse in some sectors ( restaurants, bars ) actually up in others ( beverage stores and pharmacies ).
Overall retail sales during the 90 days are 49 % of the projected monthly sales pre – Covid-19 for metro Atlanta.
This would represent a loss of $ 32 billion in retail sales in the Atlanta region : a whopping 30 % reduction in 2020 retail sales.
Nationally internet sales accounted for 16 % of all retail sales in 2019, excluding motor vehicles, gasoline and food and beverage.
Approximately $ 73 million of sales were completed during April through June, compared to $223 million in transactions during the first quarter of 2020.
First – quarter net absorption in U.S. shopping centers, including community, neighborhood and strip centers, fell 245.6 % to -5.8 million square feet.
Since the COVID – fueled shutdown took place around mid – March — near the end of the quarter — the full effects of COVID-19 on retail real estate fundamentals are yet to be seen, JLL noted.
The level of impact on Atlanta’s retail real estate sector is likely to be offset by mitigation measures being developed by operators.
While the end of the shutdown is arguably entirely due to the unknown outcome of the area’s public health conditions and reaction, the analysis assumed after June 1 the Atlanta region will begin a slow process of getting back to a new normal for the rest of the year.
Coresight reports that more than 15,000 store closures could occur in the U.S. in 2020, beating the previous record of roughly 9,300 last year.
Retail vacancy is predicted to hit a high of 5.7 % in 2021 and return to pre – COVID levels in 2024.
And SL Green’s stock, for one, has taken a beating, down by nearly 50 percent since the start of the year.
In my opinion, it might be higher towards 10%.
And since cities physically consist of real estate, you would expect a pandemic that has severely disrupted life in cities to disrupt real – estate markets.
Because cities and states depend heavily on taxing commercial properties and the activity that occurs in them, a shock to commercial real – estate values is likely to cause yet another problem for state and local government budgets.
The numbers were nearly as stark at Empire State Realty Trust, another major real estate company that owns the Empire State Building and eight other Manhattan properties.
After accounting for SL Green’s debts, that implies that the company’s real – estate properties have fallen in value by roughly 18 percent.
Office REITs in other regions, like Highwoods Properties in the South and Kilroy Realty on the West Coast, have experienced stock – price drops that imply similar declines in property value.
To the extent tenants keep paying as agreed under their leases, office landlords have some insulation from changes in the rental market due to multi-year leases.
More than a quarter of its office tenants and more than 50 percent of its retail tenants did not pay April rent.
Retail landlords report the highest rates at which their tenants are failing to pay rent, with nearly half of retail rents going unpaid during the crisis as tenants face dire financial straits.
Approximately 60 % of retailers reported that they could not pay April rent, with many asking for three months of rent abatement — and several claimed they could not pay rent until stores reopened.
Even major retailers like Staples, Mattress Firm, and Subway have ceased rent payments in an attempt to force landlords to accept rent reductions and lease amendments.
This news comes as retail giant Walmart unveiled its plan to open freestanding Walmart Health Facilities and CVS Health begins to expand its HealthHub store format.
Some, such as Walmart, Kroger and CVS Health, added to their workforce — but with many of the new employees hired as temporary employees.
Supermarkets, drugstores and big – box retailers Costco, Walmart and Target are supplying groceries, prescriptions and other necessities to the still – panicked Americans flocking to these stores.
With regards to the public, 72 percent said they would avoid shopping malls in such a case, and about 64 percent said they would avoid all shops more broadly.
Experiential spaces — like movie theaters, gyms, fitness studios and even casinos — will also be affected as individuals consume more at – home solutions like Netflix, YouTube and Peloton.
As consumers visit brick – and – mortar stores on a less frequent basis, lower – quality, struggling assets — like aging enclosed shopping malls — will either shutter or be repurposed into mixed – use developments.
People will likely eventually go back to their shopping routines, but there will be fewer retailers in each category, including restaurants, gyms and fashion.
From a public health perspective, concerns about exposure to COVID-19 could have long – term consequences for restaurants, bars, malls, movie theaters, and entertainment venues.
Many retailers, districts and even entire cities are beginning to allow their public spaces ( parking lots, alleys, streets, etc. ) to be made available to the retailers and their customers.
A district management agency of some kind is usually behind the scenes curating retail spaces and public spaces while developing activation strategies and a common brand experience.
Alongside these changes the standard square footage model will need to adjust in the short and medium term as that square footage begins to include more and more public and quasi – public spaces.
Districts without this type of entity can and should use this moment to coalesce around this common crisis and begin developing collaborative strategies.
Pre – COVID, retail – property owners had been responding to the pressure on brick – and – mortar retail by finding “experiential” tenants like restaurants, bars, gyms, and spas, where consumers ‘need to visit in person is supposed to provide protection against online competition.
The home grocery delivery service has said they will be hiring an additional 300,000 full – service shoppers over the next three months.
Restaurants, quick – service restaurants ( QSR ) and fast food retailers with drive – thru service will remain essential, but their reliance on delivery and takeout platforms will increase.
The popular pizza takeout and deliver chain says it is hiring 10,000 workers to meet delivery demand during the coronavirus outbreak.
It is not unreasonable to think that many independent grocery and food delivery services will also be looking to add employees in the coming weeks.
The discount grocery said on March 25 that it had hired 7,500 employees in a week in response to increased demand and is continuing to hire more each day.
Chipotle : The Mexican food chain is looking to hire approximately 500 hourly workers in 134 restaurants in San Francisco, San Jose and surrounding areas.
Honor : The San Francisco home health aid company is hiring trained, licensed in – home caregivers throughout the Bay Area with a focus on the Peninsula and the South Bay.
G4S : Since shelter in place orders began in March, the security company has hired 519 employees in the Bay Area.
AxleHire : The San Leandro delivery outfit has already hired 1,000 drivers in the Bay Area and plans to add 3,000 to 5,000 drivers throughout California, as well as 50,000 to 100,000 nationwide.
Outschool : The San Francisco homeschooling company is hiring 5,000 remote teachers in the Bay Area and nationwide to teach K-12 as well as as subjects like art, yoga, photography and others in live online classes.
That gives you an idea of how things are pivoting.
Donna Jean Coquilla
August 28, 2020