8C —April 23 - May 20, 2021 — Spring Preview — M id A tlAntic Real Estate Journal
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R etail M arket By Jay White, Apex Realty Advisory The retail markets demise is greatly exaggerated A pprAisAl
By J y White, Apex Realty Advisory Appraisal Clarity Retu ning in 2021
Secondary and tertiary malls with vacancies are going to need to be redeveloped or de- molished for alternative uses. Moody’s estimates that 20% of the US’s 1,000 malls will undergo some form of re-use or demolition for alternative uses. It may take time for Ameri- cans to acclimate to life follow- ing the pandemic lockdowns with continued mask wearing and on-going remote working. However, retail sales are al- ready beginning to stabilize on a monthly basis. The National Retail Federation (“NRF”) re- ported that June 2021 retail sales were up 0.8% from May he COVID-19 pan- demic created market volatility, ambiguity, a n d c om - plexity. Giv- en the sud- den changes in the mar- ket, valuing commercial real estate p r o p e r t y became a challenge that vexed com- mercial real estate apprais- ers and investors throughout 2020. The pandemic threw the U.S. economy into a re- cession in the second quarter. T Jay White
and 12.1% year-over-year. June sales saw a boost from the annual Amazon Prime Day promotion, which was also joined by many other major retailers. July’s $617.7 billion of retail sales was nearly $100 billion higher than July 2019 and 15.8% higher than in July 2020. The NRF forecasts 2021s retail sales to grow between 10.5 and 13.5% over 2020. The consumer pre-pandemic savings rate was 7 to 8% which jumped to nearly 34% in April 2020 and is expected to con- tinue, at least in the short- term. The mix of increased people movement, accumulated As in past recessions, the number of commercial trans- actions declined, which then limited the number of compa- rable sales available for ap- praisers to utilize. However, the cause of this recession was an extraneous shock, very different from previous recessions as it was more akin to a natural disaster. The pandemic caused ten- ants to request shorter-term leases and rent reductions while others sought alter- native types of forbearance. Landlords faced fading lease renewals, lower effec- tive rents, and increasing
record one of the strongest sea- sons to date. Clothing stores have already recorded an 11.9% increase in sales rela- tive to February 2020, and ad- ditional visits are anticipated in the next few months. Gaso- line sales will also benefit as adults return to their offices. What to do with vacant re- tail storefronts? Simply lease the space during the economic rebound. The impact of in- creased consumer spending should have a positive impact on retail space absorption. Alternative tenants like mari- juana dispensaries, medical outreach, and discussions regarding local market com- mentary. Market conditions in 2020 were too fluid to rely on monthly, quarterly, or an- nual sales reports to support opinions on the health of cur- rent property fundamentals and values. hen things fall out of equilibrium, estimating mar- ket value becomes more difficult and creates “ap- praisal lag” that may take several quarters, if not lon- ger, before a clearer market picture emerges. There will also be different impacts on various property types and continued on page 8C
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consumer savings, and the government stimulus checks has set the stage for increases in retail sales. However, as the Delta coronavirus variant continues to spread, companies are navigating a complex set of issues as some postpone plans to return to the office. The out - look is that retailer’s offerings now, more than ever, have to be unique, well defined and understood, or their survival will be at risk. Traditional back-to-school sales will be boosted by most schools fully reopening in the fall. Clothes, school supplies and other goods are likely to operational costs to ensure the safety of tenants and compliance with health regulations. All of these factors placed downward pressure on property cash flows and negatively im- pacted property values. The duration of these trends is a very important component to consider as real estate is a longer-term hold. The “art” of real estate appraisal is primarily based upon analyzing market data. The lack of recent market sales evidence has required appraisers to spend more time onmarket due diligence,
T
he retail market has always been the most dynamic of commercial
real estate property sec- tors. It has been forced to try to keep up with con- sumer pref- erences and reinvent it- self with new
Jay White
concepts and offerings over the past 15 years. This places modern-day retail at an in- flection point. In 2020 there were 30 national retailers that declared bankruptcy due to the pandemic which in turn caused the closure of 12,200 stores. Yet the death of the retail market is greatly over exaggerated. This year retailers are open- ing more stores than they are closing with an approximately 40% increase in year-over- year store opening announce- ments. Coresight Research has tracked 4,713 store clo- sures and 4,602 store openings so far this year. Retail chain bankruptcies over the past five years are attributable to a variety of factors, however the rise of on-line shopping/e-com- merce is not the only reason. The retailer’s own missteps of lacking to adapt to changes in consumer preferences, mount- ing debt levels and other fac- tors are to blame. The COVID-19 pandemic accelerated the emphasis on quality retail and caused con- sumers to re-examine their spending habits relative to needs and wants. It also caused retailers to realize that they had failed to man- age changes in consumer preferences – thus causing dwindling sales amidst grow- ing debt levels. Department stores were particularly risk, with the pandemic falling iconic names such as Neiman Marcus and JCPenney. Malls saw declining foot traffic even pre-pandemic, but stay-at- home orders further shifted shoppers to online shopping and spending cash on essential goods instead. Modern-day retailers are struggling with physical store- fronts, massive det, and inef- ficient operations, among other issues. Retailers today need to lure customers away from the convenience of on-line shopping with experiential in- person shopping experiences.
Jay L. White MAI, CRE® 101 Brandywine Boulevard Wilmington, DE 19803
P: 302-479-5300• F: 302-397-2403 www.apexrealtyadvisory.com
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