The retail landscape post-COVID-19 will be vastly different than it was before the pandemic hit, and all players in the real estate industry will have to work together to move the industry forward.
Tim Sanderson, Executive Vice-President, Retail, for commercial real estate firm JLL, states that no matter how adversarial the relationship can be between landlords and tenants at times, the bottom line is that we’re all in this together and the need to find common ground is more important than ever.
“Without the landlords, retailers can’t do business and vice versa. I’ve believed, for some time now, that retail is in a significant period of evolution. It will evolve in bigger and better ways because there’s a ton of smart people out there always thinking of new concepts to bring to the marketplace. I believe that will continue to be the case post COVID-19 as well,” said Sanderson.
“Nobody likes uncertainty. Thinking back to the Savings and Loan Crisis in 1987, we didn’t have the technology, the strength of financial markets, or this global economy that we do now. As terrible as that crisis and subsequent recessions were, we got through them. They had a beginning, and they most certainly had an end.”
“Governments, certainly in North America, are starting to take this a lot more seriously than they did two to three weeks ago. Measures taken until April 30 could very well extend to May 31 anytime within the next four weeks. The problem right now lies in not knowing where the end is.”
Sanderson noted that an important reality is where money will be spent by consumers once the outbreak crisis is over.
“Big-ticket items are always hurt first in recessionary times. Luxury items are hit the hardest as consumers tighten their wallets. We’re going back to shopping for essential daily needs,” said Sanderson.
Prior to the COVID-19 outbreak, Sanderson said the retail landscape within the last 18 to 24 months had been fairly robust.
“E-commerce was continuing to emerge, although it was still in the high single digits or low double digits, depending which sector of the retail economy you were talking about,” said Sanderson. “I don’t think it had deeply affected bricks and mortar retail; it was more complementary.”
In Canada, Sanderson said the country was in a fortunate position of not being “over-retailed” compared to the United States and, from that perspective, was in an enviable position with plenty of activity in the retail real estate market.
Nevertheless, Sanderson said the impact of the COVID-19 pandemic is going to be huge on the retail industry.
“Liquidity in retail is a big issue, meaning how much money people have in the bank to keep their business alive. I think the sector struck the hardest is probably the food and beverage category, which was impacted early on, and is also made up to a large degree of ‘ma and pa’ retailers. The average liquidity amongst the average ‘ma and pa’ food and beverage retailers is a couple of weeks, not six months,” said Sanderson.
“What we’ve been dealing with for the last couple of weeks is what happens when rent is due. We’ve got retailers that are shut down. We waited to see what was going to happen with the malls, if different provinces across the country were going to shut them down. It’s unprecedented territory – nobody saw anything like this coming. The language that is in most leases about business interruption and force majeure is a section that people never think they’re going to have to look at. Yet, over the last two weeks, those are the clauses that are being read, re-read, and turned upside down and inside out.”
“I think we’re going to see a lot of challenges and changes for the retail industry. That said, we are already noticing significant increases in sales across grocery, drugstore, liquor stores and other essential businesses that are allowed to stay open.”
COVID-19 continues to impact our people and our economy. More details on its effects on real estate sectors can be found in JLL’s Global Real Estate Implications Report.