New life for retail
By: J. David Chapman/April 15, 2021
We are hearing good news for the U.S. economy. Oil is trading low enough not to burden citizens and slow the recovery, but high enough that oil and gas companies are gaining a little optimism. Unemployment seems to be improving as companies are rethinking their staffing needs and cautiously planning for future growth. Workers are coming out of hiding and returning to their offices, and companies are evaluating how much space they will really need going forward with changes in the workforce. Industrial property is still growing rapidly, but seems to be doing so in a reasonable manner. Residential has continued record growth held back by a lack of, and the price of, materials. It continues to grow, but challenged by residential property availability and affordability.
Retail, including hospitality, has been the most worrisome of the property types we track. So, I was pleased to see a bit of optimism from the retail property camp. The word on the street seems to be that retail rent is cheap, there is tons of space available, and these conditions might just be incentive enough to lure retailers back to the market.
Indeed, retailers plan to open more stores than they are closing this year. Retailers such as Ulta Beauty, Sephora, Dick’s Sporting Goods, American Eagle, Five Below and TJ Maxx are rebounding from the COVID-19 pandemic and expanding by opening new stores. Coresight Research is reporting that year to date, retailers in the U.S. have announced 3,199 store openings and 2,548 closures. They are reporting that even liquidated Toys R Us is planning to open stores ahead of the 2021 holidays. This is compared to 8,953 closures with just 3,298 openings last year. We have already opened almost as many new stores as we did the entire year in 2020.
Conversations with retailers indicate they are eager to test fresh concepts as well as double-down on the brands that remained strong during the pandemic and take advantage of less-expensive rents and even open in markets they weren’t able before. The unfortunate situation that retail landlords find themselves in makes them open to greater innovation, allowing retailers to experiment with new designs and concepts with shorter-term leases, easy outs, and better pricing. Finally a little good news in a sector that could certainly use it!
J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).