Retail Takes First Steps to Recovery as Economy Reopens

If retailers could just go to sleep for the next year or so they would wake up to a world that is far more accommodating.  Of course, that is not possible and it is without a doubt that the next 12-to-24 months will be a hard slog. But at the end awaits an environment in which certain retailers can expect to flourish. That is the message panelists on a Marcus & Millichap webinar delivered as they talked about the industry’s future. 

There will be a rebirth for retail after the current crisis plays out, said Hessam Nadji, president and CEO of Marcus & Millichap.

Some of the seeds of that rebirth are being planted now, he continued, noting that trends that maybe would have taken three to four years to materialize before the pandemic are now accelerating. “Many people who hadn’t shopped online are now shopping online. This will have implications that are maybe negative in the short term but will be positive in the long term.” 

Also, retail entered into this crisis from a relatively strong base. The conditions in January, while they seem so far away and distant, do matter now, Nadji said. “The underlying strength of retail sales and household balance sheets had all been strong compared to last time we went through a shock. This will come into play at some point. Also, the  stimulus will play a role in retail’s recovery.” 

More reason to hope: oversupply of retail has not been an issue compared to the last crisis, Nadji said. “If anything supply will be even more constrained. And the industry has not overleveraged.” 

That said, it is important to not paint the entire industry with the same brush, he continued. “You don’t want to generalize, but instead assess every situation for what it is.”

Right now occupancies and other fundamentals are uncertain and must play out, Nadji said. The stronger tenants have been able to pay rent but many retailers in the lower tiers have not. 

Indeed, another factor that will determine the post-pandemic shape of retail are the actions landlords are taking now to work with their tenants.

DLC Management COO Chris Ressa, who participated in the webinar, reported that the company collected 71% of its rents for April. For Kimco Realty CEO Conor Flynn, another participant at the event, that percentage was 60%. Both said those percentages are a moving target as tenants continue to pay throughout the month and negotiations are in high gear.

Many retailers, it is little secret, have had to ask for rent relief in some form or another. By and large most landlords have been accommodating to the extent possible. In short, what that relief looks like largely depends on what the landlord is able to provide.

SVP of Leasing at VEREIT Brett Sheets reported on the call that the average request by its tenants is a two-to-four month period of rent deferment.  Negotiations are “about being completely transparent with each other and communicating on a regular basis. We want to help every tenant,” he said. 

DLC Management as well has been receiving requests for rent forbearance, Ressa said. “We have been empathetic and understanding to what is going on,” he said, adding that the company’s approach has been ‘let’s try to come to a solution but we want to look at the totality of the circumstances.’” It isn’t just the next 90 days the company is focused on, but what could happen in the future, he said. “We are making progress with people willing to look at the totality, but the ones that aren’t have been a challenge.”