Retail rent growth slumped 0.5% at year’s end, marking the first time the US retail market has seen negative rent growth since 2011. Unfortunately, this trajectory is expected to continue this year.
Colliers predicts rents will decline further over the next year as space give-backs push vacancies higher. The firm predicts retail rents will fall 3% this year and should return to pre-pandemic levels in 2022, noting that rent collections continue to tick up and signal stabilization may be on the horizon.
Large coastal markets like Boston, New York, and Los Angeles showed the most negative rent growth last year, while Southeastern markets liked Nashville, Tampa, and Orlando fared better and sustained positive momentum.
The big dividing line as the nation digs out of the COVID-19 pandemic may lie between centers heavy with nonessential retailers and those without—typically freestanding retail centers with single tenants in the grocery, fast food, pharmacy, and banking sectors. The former will likely be tied down with rent deferrals, abatements, and lease restructurings with newly added pandemic-specific language Colliers notes. The latter “have arisen as standout outperformers throughout the pandemic, with comparatively stronger rent collections and are expected to flourish in 2021,” the report notes.
Colliers predicts a growing number of retail properties will be repurposed this year and suggests e-commerce sales will contract in 2021 by as much as 8% as physical stores reopen.
The COVID-19 pandemic also illuminated which non-essential retail categories are essentially obsolete, experts say.
“During the past year, traditional enclosed regional malls have struggled, likely because shoppers have been unwilling, or unable, to brave the enclosed spaces that make up most indoor malls,” Dan Villalpando, a partner at Cox, Castle & Nicholson, said. “Overall, owners of regional malls in non-affluent areas, mainly class-B and C malls, have had to adapt to stay relevant.”