Retail rent collections are continuing to improve. A monthly report from Datex Property Solutions shows retail collections totaled 87.7% in March 2021, the highest rate since the start of the pandemic—collections totaled 90.9% in March 2020—and a stark improvement from the 40% total collections in April 2020.
“With collection levels at 56% of gross monthly rent charges, collections had only one direction to go: up,” Mark Sigal, CEO of Datex Property Solutions, tells GlobeSt.com. “Flash forward to today, and we are now within 3% to 4% of where rent collections were prior to the crash. With some caveats, we’re chugging along and returning to normalcy.”
Retail activity has improved as the pandemic has waned, supporting better business and improving rent payments for retailers. The vaccine distribution has played an important role as have stimulus checks. “In most merchant categories retail starts to be able to support pre-pandemic store capacity levels,” says Sigal. “Factor in the torrent of stimulus dollars, a consumer who’s pent up to get back to normal and with money to burn, and collections feel like they should only get stronger in the months ahead.”
Although the retail sector is improving overall, the market continues to see a bifurcation between the haves and have-nots. National tenant rent collections totaled 91.8% in March 2021, while non-national tenants are only hitting 83.7% rent collections. Shopping center REITs have reported rent collections as high as 95%. “You see asymmetries in a category like pet supplies, where collections remain strong, but there are some headwinds in the form of weaker sales data,” says Sigal. “While it seems obvious that the supermarket category would shine in the pandemic, it’s worth reminding folks that it was not that long ago that the conventional wisdom was that supermarkets were a doomed category once Amazon bought Whole Foods.”
This bifurcation is also leading to reduced rent rates in several retail categories, however, this is largely related to business operations during the last year. “More categories than not have been operating at a deeply reduced capacity for a year now,” he says. “There is no way these businesses are generating enough sales to operate at favorable margins relative to historical levels.” Examples are sit-down restaurants, which have been limited to outdoor or reduced capacity dining, and hair salons, which had significant limitations on service. “You still have a number of tenants still owing money from the first round of rent relief. The point is that some of this is just the core fundamentals of retail categories living in the realm of half open,” adds Sigal.
As we move out of the pandemic and retail activity returns, Sigal expects lifestyle and Internet resilient retailers to lead retail growth. These categories were driving the market before the pandemic as well. “In the big picture, I see a lot of pent up demand, and a full sprint back into lifestyle fortification,” he says. “People are going to want to get into shape, which bodes well for fitness; specialty retail and specialty restaurants should recover strong given the uniqueness of their products and the retail experiences they offer; people have been in sweats and leggings for too long, which bodes well for apparel.”
Overall, the improvement in retail activity and rent collections gives way to an optimistic long-term outlook. “The general macro indicators look really good, as do the aspirational indicators,” adds Sigal. “The sales trends, which are leading indicators for capacity to pay rent, look especially strong in these segments.”