In Q3, net absorption dipped further into the negatives as an influx of bankruptcies and store closures resulted in a surge in vacated space. The story of the haves and the have-nots continue to play out as many U.S. consumers struggle with unemployment and buckle down on spending, creating winners and losers in retail. Home is definitely where the pocketbook is heading into the holidays, but the promise of an effective vaccine signals light at the end of the tunnel during the latter part of 2021.
- Consumers remain cautious in this current period of uncertainty, sticking with what they need and what they know. Essential goods (food, medication) and new essential goods (home-related products, electronics) are seeing the highest growth in demand and traffic. Discretionary retail like apparel and department stores have struggled to regain ground, resulting in a surge in bankruptcies and closures.
New essentials foot traffic are higher than year-ago levels: Retail foot traffic Q3 2019 – Q3 2020
- Malls have been the most impacted retail property type, given their exposure to discretionary and experiential retail. Strong A class malls are in the best position to survive COVID and thrive as demand rebounds in 2021.
- Retail traffic for almost all retail sectors rose significantly from the previous quarter. The greatest quarter-over-quarter growth was seen for discretionary destinations like entertainment, department stores and fitness, all of which struggled during lockdown. However, most categories remain below year-ago levels except for some retailers selling essential or new essential goods like home improvement and pet supplies.
- U.S. net absorption dipped to -19.2 million square feet, as the fallout from retailer bankruptcies and store closures impact retail real estate.
- While move-outs by weaker tenants pushed down net absorption for power centers, their strong concentration of healthy big box retailers selling essential and new essential goods puts them in a strong position long term.
- Lower-income consumers are struggling, and this is playing out in an increased focus on value. Smaller shopping centers continue to see mass closures of small, local tenants but value retailers like dollar stores are expanding.