Grocery Tenants Help to Prop Up Retail Rents

Grocery and pharmacy tenants have helped to prop up average retail rental rates during the pandemic. According to a new report from Moody’s Analytics REIS, retail rents in the US declined .5% to .6% during the pandemic in neighborhood and community retail centers, a relatively nominal drop considering the economic shock. The report attributes this to the fact that many of these neighborhood centers are often anchored by grocery stores or pharmacies, which have not only stayed open during the pandemic but performed well. Ultimately, that has help to keep retail rents up.

Suburban markets seem to be getting hit harder by the pandemic. In the report’s ranking of the worst performing markets, Charleston and Central New Jersey are tied for the top position with rents down 1.8%. Albuquerque came in next with rents down 1.4%, and Ventura County and Fairfield County rounded out the list of worst performing markets with rents down 1.2% and 1.1% respectively.

The report also outlined the markets that have been the most resilient through the pandemic, with increasing rents. Suburban Maryland is at the top of the list with retail rents up 1.8%. Seattle and Tulsa took the next two spots with rents up 1.6% and 1.5%. Finally, Palm Beach and Oakland/East Bay made the top markets list with rents growing 1.3% and .9%.

The outlook for retail rents was much more grim. In June, a report from JLL predicted that retail rents would decrease 5.5% this year due to closures of retail apparel stores and restaurants. However, the same report also predicted a bifurcation of the retail market, with grocery stores and other essential businesses rising up and performing through the economic distress. This report from Moody’s illustrates that trend. However, the report from JLL also included an optimistic outlook that would come with a swifter rebound in consumer confidence. If that were to happen, retail rents would only decrease 2.1%. It seems like consumer confidence has also returned through the summer, leading to stronger rent trends. Overall, retail rents are expected to rebound to current levels in 2022.

It isn’t surprising to see that grocery and pharmacy tenants have helped to stabilize the market. From the onset of the pandemic, many predicted that essential retailers and shopping centers anchored by essential retailers would play a key role in the stability of the retail sector. As a result, tenants like Dollar Tree Stores have continued to sign lease transactions even through the pandemic. However, retail owners have been flexible in working with tenants and providing concessions. As that trend continues, retail rents will likely continue to decline.