The retail industry is showing positive signs of growth after several years of challenges caused by the COVID-19 pandemic. According to a national report from Datex Property Solutions, which analyzed changes in retail assets from 2019 to 2021, many areas of the industry are continuing to get back on their feet, pointing to even more optimism in 2022.
“We’re still struggling with it. Obviously, the vaccine kicked in, but by Q4 the national tenants were actually slightly ahead of 2019,” Mark Sigal, Chief Executive Officer for Datex, said.
The report analyzed thousands of retail properties across the nation, looking at changes in rental collections throughout the years as well as changes in occupancy costs and changes in rental rates, and found, on a broad scale, the sector has mostly returned to pre-pandemic numbers. According to the report, 89.29 percent of rent was collected in 2021, while 91.77 percent was collected in 2019. Additionally, only a slight change was observed in the percentage of rental rate increases, 47.44 percent in 2021 as opposed to 47.28 in 2019.
While numbers remained largely unchanged across the board, Datex found more variation when looking at specific property types as well as in specific locations. According to Sigal, this is likely due to changing consumer habits during the onstart of the COVID-19 pandemic.
“One of the things that happened in the pandemic is people started working more remotely than going into an office. They went in less frequently or not at all, so in some of those financial districts that are more dependent on worker bees showing up, they were directly impacted,” Sigal said.
Overall, the best performing property types observed in the report were fast food restaurants, dine-in restaurants, pet supplies stores and sporting goods stores. From 2019 to 2021, fast food assets saw a 17.65 percent increase in sales and occupancy costs decreased approximately 2.67 percent. Pet stores also remained strong amid higher adoption rates as many worked from home. The category saw a 12 percent increase in sales from 2019 to 2021. However, occupancy costs dipped slightly by 1.8 percent.
According to Datex, these property types likely performed well due to changing consumer behaviors, which can also be observed in sporting goods assets across the country. While fitness assets and sporting goods assets are commonly tied together, the two property types did not perform the same throughout 2019 to 2021. Sporting goods assets saw a 9.83 percent increase in sales, while sales for gyms declined by more than 22 percent. At the same time, sporting goods stores saw 36.63 percent decrease in occupancy costs while occupancy costs for fitness centers climbed 48 percent.
“FItness versus sporting goods is a good example of how behaviors can change when catalytic events like pandemics occur, but they don’t change in equal manner in all categories. If you think about it, as the pandemic had people weren’t able to really go into gyms, so what people did is they bought sporting goods gear,” Sigal said.
He continued, “I believe fitness will ultimately be back because there’s that social component, and the strongest growing category of retail, pre-pandemic, was lifestyle things that really leverage consumers being in the same space, the social component, the experiential component. I don’t believe that fitness is ultimately going to go away. I think people have a need, but this is a good example. When I look at fitness versus sporting goods, the data shows you pretty clearly how one can benefit while the other is struggling because of the pandemic.”
In addition to fitness centers, several other property types took major hits from the COVID-19 pandemic. Movie theaters, for instance, saw a 210.17 percent increase in occupancy cost over the past two years. The asset class also saw sales decline by 66.67 percent, leading Datex to believe movie theaters will need to become a more niche product over the years, offering users a stronger experience – by offering an in-house wait staff and reclining seats – in order to compete with other retail uses.
Department stores also saw sales plummet as customers turned to online shopping. According to the report, sales from 2019 to 2021 dropped 34.87 percent and occupancy costs increased by 160.92 percent.
Despite some asset classes seeing declining numbers, Datex suggests the retail industry as a whole is in relatively good shape moving into 2022 as the previous year still saw a large increase in lease renewals. Across the nation, lease renewals averaged increased by 8.3 percent from 2019 to 2021. Additionally, early termination decreased by 27.83 percent to 3.24 percent..
“I think part of what the data is telling you is in 2020, there was not a whole lot of leasing activity in relative terms. Tenants were in some struggles, a lot of the deals that were done were basically a lot of rent relief agreements. By 2021, you have a very different outlook. Most of the businesses we’ve talked to had record years, because it’s also a little bit of the calm after the storm. While there are plenty of tenants that were destroyed by COVID-19, I think from the ones that came out the other side, the folks that got through COVID, had fundamentally stronger businesses and the relationships between landlords and tenants were strengthened,” Sigal said.