For the Orlando retail market, which relies heavily on Central Florida’s $75 billion tourism industry, the impact of the COVID-19 pandemic has been twofold. Not only has the local consumer base begun relying more heavily on online shopping and home-cooked meals, but the number of out-of-state and international visitors who typically travel to Central Florida for its renowned theme parks and attractions has plummeted.
Statewide, Florida’s tourism industry suffered an estimated 60.5 percent drop in visitors during the year’s second quarter, with international travel down more than 90 percent, according to Visit Florida.
Submarkets built around Walt Disney World, the Orange County Convention Center and Universal Orlando, such as International Drive, the U.S. Highway 192 Corridor and Celebration, have taken an especially hard hit. Many restaurants designed around a sit-down experience will not recover. Although creative solutions are in action, sidewalk seating and ghost kitchens can only generate so much revenue to recover restaurants’ already razor-thin margins.
Terrence Hart
Senior Director,
Franklin Street
But out of the slump have come opportunities for some retailers to shine, whether they’ve adapted their business model or already happened to have pandemic-resistant infrastructure in place. Further, as the winners and losers of COVID-19-era retail become clear, retailers and restaurants that prevail are positioned to gain access to better real estate, more generous lease options and, potentially, discounted rents.
Now a couple months into the recession, landlords are no longer viewing the pandemic as a short-term problem.
As national brands that have filed for bankruptcy — including Pier 1 Imports, SteinMart and GNC — shut their doors for good, we can expect the spaces they leave behind to be filled with more resilient national concepts, as well as smaller, independent businesses that appeal to Orlando’s year-round residential population.
While many landlords are doing what they can to help tenants stay in business, the bottom line is that tenants in delinquency are at risk of being evicted and replaced with ones better positioned to thrive.
Home improvement and home furnishing stores are a prime example of the type of businesses that are succeeding without having to make many changes to their operations. These retailers are in high demand as Americans spend more time at home and focus on making their living spaces more comfortable and enjoyable.
Liquor stores are also thriving. In June, CNN reported alcohol sales were up 27 percent nationwide. Florida-based ABC Fine Wine & Spirits, which has a significant presence in the Orlando market, was able to quickly adapt to the current environment by offering curbside pickup and making use of delivery services. One of those services, an app called Drizly, has reported a 400 percent increase in use since the pandemic hit the nation.
For at least the next six to 12 months, we can expect re-tenanting to be a major focus of Central Florida’s retail landlords, particularly for Class A properties.
We are even seeing this occur within Orlando’s outlet malls, which pre-pandemic received the majority of their foot traffic from out-of-towners. Now, as outlet operators struggle to stay afloat, some are waiving restrictions that require tenants to be national credit-worthy brands and are allowing local concepts to lease space. This shift could be a win-win. The mom-and-pop outfits gain access to real estate they previously never would have been allowed to lease, and the landlords get to collect rent, albeit sometimes discounted as much as 30 percent.
Brokerages such as Franklin Street are helping tenants seek shorter-term deals, performance clauses or deals with better term options.
One thing we know for sure is that vacancies are rising, and it’s important to note that what’s currently on the market is likely not an accurate reflection of what is available. Landlords are keeping their options open, and if they can trade up for a stronger tenant that can pay rent, they will. This means a significant portion of retail leases will be arranged off-market over the next several quarters.
Big picture, this pandemic is forcing Orlando’s retail market to adapt when it can no longer rely as heavily on tourism. Tenants should proceed with caution and prepare to take advantage of upcoming availabilities and better lease terms. Tenants and landlords that make it to the other side of this recession will hopefully see a swift recovery as consumers revert to pre-pandemic habits, but there’s no doubt this era will have a lasting impact on Orlando retail.
— By Terrence Hart, senior director at Franklin Street. This article originally appeared in the August 2020 issue of Southeast Real Estate Business.