People shopping at a retail outlet

Commercial Real Estate Trends:                The Latest in Retail

This article is part of a series covering recent commercial real estate trends by asset class.

2020 has been a year of change.

In fact, the changes have been so drastic and widespread that you rarely hear anyone utter the word normal without first adding the word new.

That’s been just as true for commercial real estate (CRE) as it’s been for our day-to-day lives.

In Part 1 of our series on CRE trends, we’ll cover how those changes have affected retail.

Retail trends you need to know

The COVID-19 pandemic hit retail hard.

Between regional lockdowns and health concerns associated with gathering indoors, many retailers have suffered.

Fortunately, restrictions are easing across the United States, businesses are implementing new safety measures, and the public is learning new ways to lower their risk of infection.

Things are starting to look up … but retailers still face significant challenges.

According to Retail Dive, “Bankruptcies have largely slowed as the industry heads into the holiday season. But depending how the holidays shake out, 2021 could bring another wave.”

The article goes on to note that 17 retail companies are “at a heightened risk of filing for bankruptcy in the next 12 months.”

On The Weekly Take, a podcast from CBRE, three experts discussed the current threats and opportunities in retail. The panelists were:

  • Adam Ifshin, Founder and CEO of DLC Management
  • Chris Ressa, COO of DLC Management
  • Melina Cordero, Managing Director of the CBRE Retail Capital Markets Group in the Americas

During the podcast, Melina Cordero noted that, while there’s still a pause on large transactions, retail is on the path to recovery.

“We saw this … big decline in sales over March and April and then this incredible bounce back where we are today,” she said. “And we have been, since July, above where we were last year and above where we were pre-pandemic.”

According to Adam Ifshkin, the greatest opportunity the bounce back presents is in open-air retail.

“We are avowed believers that open-air value retail is an institutional investment class. It’s here to stay. And it’s actually going to come out of this cycle stronger than it was going in,” he said. “It is, without question, the ultimate cost-effective tip of the last-mile spear to get goods to middle class Americans.”

Adam went on to note that the pandemic and recession accelerated already existing trends in retail and “that acceleration is hastening the demise of, essentially, retail where the common area is roofed and temperature-controlled.”

On the leasing side, Chris Reesa pointed out that landlords have to accommodate tenants who are facing financial challenges — but they need to be strategic in their approach.

“When I say accommodate, I don’t mean give away rent. We want to be partners, and we want to create win-win outcomes for everybody,” he said. “Just giving away the rent would put most landlords out of business.”

“[The] majority of our tenant base, we were able to come to terms and make deals,” Chris added. “Everyone gave a little, and everyone got something.”

For some retailers, piggybacking on the growth seen in the industrial sector is providing a path for success.

According to JLL:

“For years, mall landlords have been looking for ways to curb their losses in the age of online shopping.

“Now they’re betting that ecommerce — the very thing that disrupted their businesses to begin with — will help provide that boost.”

The article went on to note that “retail owners are increasingly looking at micro-fulfillment centers and logistics nodes that can sit right behind stores. The model puts click-and-collect, in-store shopping, and the fulfillment of online and pick-up orders in one place, located close to where people live.”

Key takeaways

  • Retail is bouncing back from the impact of the COVID-19 pandemic, but many retailers are still at risk for bankruptcy and larger transactions have paused.
  • Open-air retail is seeing greater success than roofed, temperature-controlled facilities.
  • Landlords must work with tenants to negotiate win-win terms that empower all parties to succeed despite difficult financial circumstances.
  • Some retailers are looking at converting to hybrid industrial-retail centers to generate additional revenue.