COVID-19 has led to significant negotiations between landlords and their retail tenants. Many chains are turning for help on how to navigate their distressed real estate obligations. Some flailing retailers are telling their landlords that they’re unable to pay rent for months following pandemic-related closures and thousands of new cases of COVID-19, which have left many struggling with dramatically reduced foot traffic.
The pandemic is forcing grappling retailers across the U.S. to make tough decisions. Some are trimming store fleets or shutting down operations altogether. According to a recent report from retail data firm Coresight Research, 20,000 to 25,000 U.S. stores could permanently close this year.
Since 1992, Excess Space Retail Services Inc., for example, has been helping retailers reduce occupancy costs through real estate disposition, lease restructuring and lease renewals. The company is part of Newmark Knight Frank Co., with offices in New York and California. Its clients include AMC Theatres, Best Buy, CVS Health, Dollar General, Michaels, Whole Foods, SuperValu and Staples.
According to Michael Wiener, president of Excess Space, with the pandemic and resulting economic climate, there’s an increase in lease restructuring/lease renewal-related activity as well as disposition-related activity, including sublet assignments, lease termination and the sale of fee simple properties.
The landlords themselves don’t know if another round of rent abatement/deferment requests from their tenants are coming, and they’re also bracing for possible post-holiday season bankruptcies. There’s data out recently that showed 94 percent of rent was collected nationally by landlords in August 2019 and only about 79 percent of rent was collected this August. There’s a lot of pain out there on both sides with the exception that there are some retailers in specific categories doing quite well.
Retailers typically run their staffing lean and they’re expansion-oriented for the most part. In times like these, if you don’t have an expertise in something and you’re just trying to gain it overnight, it’s a dangerous experiment. What was happening particularly at the beginning of COVID-19 was a lot of retailers tried to tackle dealing with short-term deferments and abatements themselves.