Strip Center Rebound Could Be Stifled By Inflation, Supply Chain Disruptions, Labor Shortages
The acceleration of e-commerce is another factor that could hurt the strip center REIT rebound.
Headline fundamentals have stabilized for strip center REITs, which are up more than 56% year-to-date, said BTIG in a report. But the broker-dealer warned inflation, supply chain disruptions, and labor shortages give it pause about a continued rebound.
“These forces could lead to slower leasing volumes or delays in the time between lease signing and store openings,” forecasted the firm.
These forces combined with consumer hesitancy about the economy has led BTIG to predict the strip center business will return to its pre-pandemic baseline with relatively lower internal growth statistics and the same secular headwinds that faced the industry previously.
Supply chain disruptions, cautioned the report, could put the breaks on new leasing as retailers may find it difficult to stock new locations. With the disruptions, the Inventory-to-Sales ratio currently sits at 1.11, well below the 1.52 average since 1992 and even the 1.41 average since the 2009 financial crisis.
Even if new leases continue to come in, the study added there could be greater lead times for stores actually opening.
Labor shortages, which are already having an impact on the operations and hours of existing locations, could bite leasing volumes as well, BTIG said.
The labor and supply shortages are making it hard for smaller retailers to justify new locations when it is a struggle to stock and staff the existing ones, the report explained.
The acceleration of e-commerce is another factor the firm said could hurt the strip center REIT rebound.
“Given the current headwinds and the secular trends that remain, we think the “reopen” trade has likely run its course and the group as a whole is fairly valued here. Investors looking for opportunity should focus on individual stocks with high-quality portfolios, less discretionary tenants, and strong management teams that can drive better FFO growth in a normalized environment,” BTIG is advising.
The current situation is a reversal from February, when the firm said strip centers were well positioned for post-pandemic growth.