The pandemic forced retailers to innovate in both offerings and store formats.
Even after 2020’s struggles, the retail real estate industry is optimistic about recovery and the future of stores and shopping centers, according to a new ICSC survey of retailers and commercial real estate companies.
Though the pandemic led to sharp declines in foot traffic, 60% of CRE leaders and 55% of retailers expect a return to pre-pandemic levels by the end of the year.
If anything, the pandemic forced retailers to innovate in both offerings and store formats. A large amount, two-thirds of respondents, began offering in-store fulfillment of online orders during the pandemic. Seventy-three percent of small retailers implemented a click-and-collect option, while 88% of shopping centers are being used to fulfill online orders, according to CRE leaders, according to ICSC. Almost all respondents (99%) indicated that their stores fulfilled online orders in some form or fashion.
Looking forward, both retailers and CRE firms are planning targeted investments in digital marketing and online storefronts to keep up with the convergence of online and physical retail. Seventy-eight percent of large retailers say their marketing efforts will target the digital customer experience, while 73% said in-store sales were a priority, according to ICSC.
Convenience is also a priority. Forty-six percent of retailers and 50% of CRE firms have worked to increase accessibility for quick trips. Around 75% of retailers have used their parking lots to accommodate curbside pickup.
Safety will also remain a priority to retailers and CRE leaders. Even after vaccines are widespread, nearly 80% of small CRE firms are likely to continue using plexiglass barriers to protect employees and shoppers over the next 12 months, according to ICSC. Seventy-six percent plan to continue shortened hours, while 53% of larger firms will continue shortened hours. Seventy-six percent of large CRE firms have prioritized increased sanitation (76%) over other restrictions. Most independent retailers, 58%, are prioritizing crowd management.
While the ICSC survey paints an optimistic picture of retail, there are clearly stresses in this segment of commercial real estate.
Approximately 40% of the CFOs surveyed by global accounting firm BDO say they are reevaluating their real estate footprint this year, as high unemployment rates and stalled COVID-19 vaccination strategies have brands girding for a lengthy period of reduced consumer spending.
A mere 37% of middle-market retailers anticipated increased revenue this year, a sharp decline from 83% of respondents last year in the same category. And only 49% of those polled have enough cash reserves to cover the next three months or less of expenses. Over the last six months, 94% of retailers secured external financing—a significantly higher percentage than expected—and 93% say they plan to in the next six months, with proceeds from a sale or divestment the most likely sources of outside capital.
Separately, research from Moody’s Analytics REIS showed that most of the decline in retail rents and increased vacancies will happen in 2021.
The retail vacancy rate increased to 10.5% in Q4, a slight uptick from 10.4% in the third quarter and the highest level since 2013, while mall vacancies also jumped another 0.4% to 10.5%, the highest level in more than two decades, according to Moody’s.
Average mall asking rents slumped 0.8% in Q4 and 1.8% over the course of the year. Moody’s expects malls will suffer more than neighborhood and community shopping centers as they bear the ongoing weight of department store anchors closing and the slow struggle of “experiential” tenants like trampoline parks or entertainment companies to rebound in the wake of the COVID-19 crisis.
As retailer bankruptcies continue to stack up and the pandemic continues, Moody’s predicts even steeper declines in 2021, saying many retailers could get “crushed” with the surge in COVID cases.
Source: “Despite Headwinds Retailers Expect a Return to Normal in 2021“