Where Are Retail Rents Heading?

Retail rents are a big question mark today. As we head into late summer, tenants are beginning to request lease modifications and concessions, but rents have yet to falter. At some point that will change, but predicting where rents are heading is challenging, largely because there is a double market with essential and non-essential tenants. But, there are other factors as well that make predicting retail rental rates—and in turn retail investment—a challenge.

“It’s very difficult to say and depends on a number of factors such as the location of the shopping center, the tenant mix, and the type of services and/or goods the particular tenant is providing,” Chris Rizza, a partner at Crosbie Gliner Schiffman Southard & Swanson, tells GlobeSt.com. “Rents are also likely to be impacted by the development of a COVID-19 vaccine and the outcome of the presidential election.”

For non-essential uses, retail rent collections have plummeted, which could be a precursor to decreases in rental rates. For essential uses, however, rents have been stable. In addition, retail areas with space and outdoor areas will also see better foot traffic and therefore more stable rents. “In general, I think rents for outdoor malls may tend to remain more stable than rents for indoor malls—people may feel a little safer visiting and spending time at outdoor malls given what we know about the virus,” says Rizza. “Rents for tenants that have a significant online presence may take a dip since those particular tenants may no longer see the benefit of taking on the risk of paying rent for a brick and mortar presence.”

However, select non-essential uses could rebound quickly, contributing to more stabilized rents. “I believe rents for tenants that provide essential services—like grocery stores, home improvement—or experiences—like gyms, movie theaters, restaurants, and bars—will generally remain stable. There are portions of the general public that are eager to get back to a sense of normalcy,” says Rizza.

Ultimately, retail rent trends will follow consumer activity and depend greatly on stay-at-home orders. “As soon as the stay-at-home orders are lifted, I believe a good portion of the general public will return to businesses providing experiences, which should help justify maintaining rental rates for those businesses,” adds Rizza.