After more than two years of pandemic-related turmoil, data from Avison Young suggests that the worst is over for retail, and that recovery has arrived.
"I really think we're there," says Brent Glodowski, Director of Tri-State investment sales at Avison Young. "This new normal is more like the old normal."
Glodowski points out that foot traffic in retail corridors has recovered back to end-of-2019 levels; other areas of retail are close behind according to a recent Avison Young whitepaper. Consumers still want fast and easy e-commerce, but it seems they also yearn to get back to enjoying the in-person experiential shopping of pre-COVID times.
That's not to say that pandemic-era technology advancements are being cast aside. Now, Glodowski notes that in-person shopping has incorporated some of the convenience of online into the overall in-person experience.
"I really think it's a balance," says Glodowski. "People want to get back to a slightly easier, cleaner version of the retail experience they had previously. Ultimately, retail is better now because of the pandemic."
Retailers are more resilient.
Despite inflation sitting at a 40-year high, Avison Young reports that retail sales growth has generally outpaced inflation since December 2019 (the restaurant sector notwithstanding). Moreover, a possible recession may not be catastrophic for retailers; Glodowski argues that retail tenants' COVID-compelled caution has better situated them for economic crises like recession.
"COVID made everybody take a step back and pause," says Glodowski. "If we had a booming retail industry leading up to [now], I think it would be a real shock to the system. But I actually think COVID helped us by preparing us for a recession."
Retail relationships trump retail track records.
Glodowski acknowledges that large, national retailers are traditionally better prepped to deal with economic turmoil than "mom-and-pops" are – noting that ongoing inflation may compel smaller, local stores to make cutbacks and ask for rent accommodations. Data from Avison Young shows that local retail is the one area where weekday foot traffic remains down from pre-pandemic levels. But Glodowski also has a reminder for investors: even large, typically reliable retailers had similar trouble paying rent in 2020.
"I think that what COVID has brought out in all of this is that everything is on the table," says Glodowski. "Who would have thought that many banks would be closing spaces, or that pharmacies would be going dark and giving back the keys with a number of years remaining on the lease?"
Retail tenant ratings have thus become less reliable, according to Glodowski. Regardless of tenant history, landlords are going to have to be more engaged with their retail tenants.
"There needs to be a firmer relationship between landlord and tenant in order to work with each other, to make sure everyone is on the same page and happy," says Glodowski. "I don't believe that a tenant's track record or credit has as much weight and as much meaning as it did a few years ago."
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