Retail Investor Sentiment Turned at the End of 2020

Retail sentiment took a turn at the end of 2020. The sector was hit hard by the pandemic, and capital investment halted. However, the announcement of two vaccines helped to fuel consumer spending at the end of the year, and gave investors a renewed confidence in the eventual recovery of retail.

“Despite the significant increase in COVID-19 infections and deaths in the fourth quarter of 2020, investor sentiment for retail has begun to recover due to the optimism over the efficacy of the two COVID-19 vaccines currently being deployed in the US,” Gary Glick, a partner at Cox, Castle & Nicholson, tells GlobeSt.com.

The rebound in retail spending could help to drive increased retail investment in 2021, particularly for shopping centers. “It is anticipated that shopping center investment sales will start to normalize based on abundant liquidity, low cost of capital and attractive returns toward the third quarter of 2021. This financial environment will reward investors with a wider yield spread and additional gains from asset value appreciation.”

In fact, shopping centers, regional malls and other distressed retail assets will become the target for retail investment in 2021. According to Glick, these assets will provide the best pricing and opportunity as well as room for growth, thanks to a receding pandemic and a growing economy. “Because commercial real estate investment firms are having a difficult time acquiring industrial, manufactured housing, suburban office and apartments, and fully leased food store/drugstore shopping centers at acceptable cap rates, it is anticipated that an infusion of new private equity capital and institutional capital will be utilized to acquire malls and distressed shopping centers,” he says.

In addition to decreased investor demand, a lack of capital has also stunted retail investment in 2020. Next year, capital activity will still be limited as lenders are looking to mitigate risk. “While COVID-19 has affected nearly every aspect of commercial real estate in one way or another, one of the most fundamental consequences has been in lending, where strategies are being adjusted for a post-pandemic environment,” says Glick. “Many lenders are facing substantial headwinds and, as a result, underwriting criteria has become more conservative. This conservative lending environment has resulted in fewer options for shopping center borrowers.”