A group of the most seasoned veterans in real estate expects that the retail sector will remain in a downturn, but that the most severe declines are behind us, and some feel that a “bottom” may start to form in 2021. The latest survey by real estate advisory firm RCLCO includes the opinions of hundreds of high-level executives on current and expected future conditions. I was one of the authors of the RCLCO study, which came out last week.
The report found that there is a huge amount of variation in the outlook among different types of retail space.
Hardest Hit: The Secondary Regional Malls
If you aren’t the number-one mall in the metro area, life is bad. Secondary regional malls are in the worst shape, according to the survey’s respondents. The most common assessment, by a wide margin, was that this property type is in “full downturn,” at just over half of all respondents. The second-most-common answers were “bottom” and “early downturn.”
Looking one year into the future, a quarter of respondents expect the secondary malls to be hitting the bottom. Very few (5%) think the secondary malls will be starting the next “early recovery.”
Larger Regional Malls
The “fortress malls” are similarly considered to be in a downturn, but 38% said that they are in a “full downturn,” and 27% said that they are in the “early downturn” stage. Only 15% believe these massive centers have already hit bottom.
Our respondents believe that fortress malls will be at-or-closer-to-bottom one year from now. Well over a third (37%) believe that malls are in “full downturn.” Fifteen percent of respondents said that these large malls are already at “bottom,” and 20% said that they would reach the bottom a year from now. It is disheartening to see that the outlook for these malls does not improve much a year from now.
Essentially the same percentage of these real estate veterans say that fortress malls will be in “full-downturn” mode a year from now as say they are currently in that status. Any way you slice it, these mega-malls are expected to experience major problems over the next twelve months.
Big Box and Power Centers
The large standalone stores and the shopping centers that they anchor are obviously suffering, and they are expected to continue to be in distress. Big box and power center retail is considered now to be in “early downturn” (27% of respondents), or in “full downturn” (22%). Only 14% think it has already bottomed, implying more distress to come.
These centers are expected one year from now to still be in “full downturn” (19%) or at the bottom (17%), but there were about as many respondents who chose “don’t know” (17%) as anticipate a “bottom” (17%) in mid-2021, suggesting pessimism mixed with uncertainty about the status of this sector a year from now.
Other Retail Centers
Lifestyle, outlet, and High Street retail are seen as being in the early stages of downturn, with some tough months ahead, while grocery-anchored community/neighborhood centers are seen as stable. Groceries and convenience goods are still in demand, and the expansion of delivery services by the grocery stores, already happening before this crisis, came just in time to support their businesses.