Retail Rent Collections Begin to Increase

National retail rent collections are increasing after several months of declining collections. According to Datex Property Solutions’ latest Tenant Track Report, retail rent collections hit 77.2% in July, up from 68.1% in June and 57.2% in May. The increase in rent collections may be a sign that retailers are adjusting to new regulations and shopping norms.

“There are a few variables driving the uptick in retail collections since the lows in April,” Mark Sigal of Datex Property Solutions tells GlobeSt.com. “One, we have moved into a period of “new normal” where the merchant categories that required re-factoring or re-configuration to accommodate social distancing protocols have done just that, making it easier for these operators to generate income, which is their “oxygen” to pay rent. Case in point, Restaurants have gotten better at accommodating takeout and delivery services. Additionally, beauty supply operators have better integrated online buying with local pickup.

Cities have also evolved and started to help retailers find ways to adapt during the pandemic. “Cities have been partners in the process, making it easier for retailers to get permits for outdoor seating on Restaurants (often taking over metered parking spaces), or outdoor haircutting in cities where Hair Salons are deemed non-essential,” says Sigal. “As a result, slowly but surely, more retail categories across more of the country have moved from closed to partial operations to full operations. As this has happened, the consumer has gotten better at navigating this new reality. Finally, the first wave of PPP loans has acted as a critical economic backstop keeping numerous retailers in business who otherwise might have failed.”

Still national tenants continue to outperform mom-and-pop tenants. National tenant rent collections were 79.8% in July while non-national tenant rent collections were 74.6% in July. “Non-national tenants are holding up pretty well. This is attributable to the fact that non-nationals are by definition local, and so were able to course-correct more rapidly than nationals, who may have dozens to hundreds of micro markets requiring specific operating strategies,” says Sigal. “That noted, national tenants are catching up, and have become more agile in local markets.”

In addition, national tenants have access to capital and stronger balance sheets to weather a storm, like this pandemic. “National tenants as a whole have stronger balance sheets to weather the storm, though even this truth is heavily category-dependent where, for example, 24 Hour Fitness went from a perennial 99%+ rent paying to bankruptcy in 90 days,” says Sigal. “Fitness and movie theaters are heavily impacted  by this dynamic in numerous markets.”