Shopping Centers Are Well Positioned for Recovery in 2021

A recovery could be on the horizon by the middle of the year. While a positive outlook is largely linked to vaccine distribution, once the pandemic officially ends, a rapid V-shaped recovery is still likely. While this is good news for the commercial real estate market in general, it paints a particularly bright outlook for retail and shopping center assets.

“Most recessions begin when rising interest rates or stressed financial markets undercut demand for goods and services, driving up unemployment, which further crimps demand,” Gary Glick, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “The COVID-19 recession is different. This recession is more akin to the economic damage wreaked by a natural disaster, like a hurricane or earthquake, which typically interrupts the supply of goods and services. When a disaster of this sort ends, a V-shaped recovery typically ensues.”

Vaccine distribution, historically low interest rates and pent-up consumer demand will all create a perfect storm for shopping centers this year, both for operators and investors. “With effective vaccines, most of the population could be vaccinated by midyear, allowing social-distancing restrictions to loosen or even end,” says Glick. Once restrictions are lifted, the ensuing recovery could turbocharge asset prices and consumer and capital spending. Combining this with historically low interest rates, it seems more likely than not that shopping centers will begin to recover or even flourish by the end of 2021, so long as new or existing restaurant and retail operators are able to fill the void left by COVID-19-related vacancies.”

This recovery will likely begin at the half year or later. Today, shopping centers deals are still highly dependent on asset quality, location and the strength of the sponsor. “While there is still sufficient debt capital today for new shopping center acquisitions and refinancings, the pricing and leverage will be highly dependent on the sponsor, location, quality of the asset, stability of cash flow and business plan, with terms varying significantly depending on the combination of those factors,” says Glick.

Despite some constraints, Glick says that there is a substantial amount of capital continuing to chase retail deals. He says, “Surprisingly, there is a significant amount of liquidity in today’s market from all groups of lenders, including banks, life companies, specialty finance groups and investment banks.”