Strip Center REITs Poised for Post Pandemic Growth
This sector was outperforming its peer group in pre-pandemic 2020 as investors sought safety in the wake of precipitously declining rent inflow.
High-quality strip centers well positioned to weather both secular trends and COVID-19 pressure will thrive in the new normal of 2021, according to a new analysis by BTIG Research, which shows that the sector is still trading at a 27% discount to its REIT peer group.
Potential for the sector boils down in part to whether these malls’ market performance since November are part of a larger cyclical trend, the report says.
Positive vaccine news in November led strip center REITs to “meaningfully outperform” the REIT sector generally as well as the broader market. But this sector was also outperforming its peer group in pre-pandemic 2020 as investors sought safety in the wake of precipitously declining rent inflow.
BTIG forecasts room for growth, especially for the West Coast and Northeast regions, which have operated under the most stringent COVID-19 restrictions and shutdown orders. Small cap strip center REITs are disproportionately positioned to benefit from COVID-19 recovery and could outperform. And while e-commerce and omni-channel shopping will continue to be many consumers’ preference, BTIG believes increased vaccine distribution will feed demand for experiential concepts and service-oriented retail during the second half of 2021.
“A vaccine is not a time machine, and some advancements made in the e-commerce space will be sticky,” the report notes. “We think that landlords should use the tailwinds of 2021 to reposition their portfolios with tenants and services that will perform even with a continuation of secular trends in omni-channel shopping.”
The sector has seen a significant improvement in rent collections over the last few months, with BTIG reporting in October that levels are near 90%, up from a low of 49% in April and May.