Who Will Foot the Bill for Physical Distancing As Businesses Reopen?

In Europe, McDonald’s takes the sanitizing process very seriously.

“McDonald’s is implementing changes in European stores where they have designated people to wipe down surfaces after every contact from an individual,” says Noah Shaffer, senior director of asset management for Confidant Asset Management. “If you go up and touch the touch screen, somebody comes in and will immediately wipe it down with Lysol or a disinfecting wipe.”

But that’s not all these retailers are doing. “They also have barriers set up,” Shaffer says. “There will be contactless delivery maintained when you go into the store or the drive-through.”

Ultimately, Shaffer predicts COVID will cause substantial operational and logistical shifts in both the operations center within the store and the real estate footprint. There could also be significant changes in the HVAC system. 

“Obviously, it’s a little early, but the way that HVAC systems are set up in interior spaces will change to prevent the risk of infection,” Shaffer says.

Inside restaurants, customers will also notice changes. “There will be a change in the layout of restaurants,” Shaffer says. “Especially in the short term, there will be more space between diners.”

But those aren’t the only changes tenants will be making. “Retailers have already started coordinating that customers walk down one aisle in one direction and another aisle in another direction,” Shaffer says.

Also, Shaffer predicts that there will be reductions in square footage and an increase in outdoor seating, which will allow restaurants to continue operating.  

These upgrades won’t be cheap. Someone has to foot the bill for these modifications. 

“Right now, we’re seeing tenants asking landlords for rent reductions,” Shaffer says. 

Retailers are using their loss of revenue as justification for these requests. But that isn’t the only reason. “They are also using the expected capital improvements needed to accommodate government regulations that are passed or will be passed to justify rent relief requests,” Shaffer says. “We expect the tenants to come back to the landlord and say, ‘Hey look, the government is mandating that we do X, Y, and Z.’”

For instance, a tenant may ask for a 30% rent reduction over the next six months. “They’re going to be using that to revamp the stores,” Shaffer says. “But, there are no agreements on that.”

Whether the landlord offers assistance can depend on multiple factors. “It comes down to what does the lease say and who is obligated to pay,” Shaffer says. “Then second, it comes down to does the landlord have the money actually to make those improvements and support the tenant. And, finally, what are they willing to do in conjunction with them.”