By Tim McFarland, Sansone Group
It is hard to describe 2020 as anything other than a lost year. COVID-19 brought us quarantines, social distancing, masks and plenty of uncertainty. The pandemic pushed our healthcare system to the brink, stressed our supply chain and caused a global economic slowdown.
The St. Louis commercial real estate market certainly felt the effects of COVID-19, with retail and hospitality being hit the hardest. The retail sector was turned upside down by lockdowns that transformed homes into virtual offices, mandates that forced the closure of non-essential businesses and capacity restrictions that required restaurants to learn how to survive without dine-in business for a large portion of the year.
Tim McFarland, Sansone Group
These factors have caused an increase in vacancy to nearly 5 percent, and average asking rates to soften to $13.02 per square foot, off by 15 cents per square foot from this time last year. Perhaps most intriguing was seeing trends in the retail market accelerated by COVID-19.
E-commerce
For years now there has been a trend toward e-commerce. That is true now more than ever as the pandemic has accelerated the drive to digital. More than five years of e-commerce adoption was compressed into a three-month period during 2020. That trend hasn’t slowed down this year, as e-commerce spending is showing more than a 40 percent growth over the past 12 months.
Retailers need a robust omnichannel strategy to compete with the digital giants and expect to see landlords strive to find a tenant mix that is “Amazon proof.” Bass Pro Shops, for example, was given a high ranking from Newsweek and Statista for the “Best Trending Online Shops in 2021.”
Outdoor retailer REI is another example of a retailer that adapted online during the shutdowns last year. Known for its in-store customer service, customers can now go online for virtual outfitting at REI. Shoppers can book a free one-on-one virtual appointment to meet with an online expert as the retailer seeks to “bring all the goodness of the co-op right to your screen.”
These are just two examples of retailers with a strong online presence that are well positioned to take advantage of increased consumer spending, and both have announced new stores in St. Louis set to open in 2022.
Other retailers, like Burlington, have gone the other way. Burlington has no e-commerce presence yet competes with digital retailers by offering its customers something you can’t find online — a “treasure hunt” experience with a constantly rotating inventory at bargain prices. Burlington continues to be successful with that strategy, fueling aggressive expansion this year. Roughly 60 locations are planned to open across the country over the next three months, including a 28,000-square-foot store in Ferguson.
Restaurant oversaturation
For the better part of five years, restaurant industry experts have warned of oversaturation. The numbers validate this notion as the rate of restaurant growth has outpaced population growth. Per the Bureau of Labor Statistics, in the past 10 years, the number of restaurants jumped close to 16 percent. Population growth only grew at 8 percent.
The St. Louis market has certainly ridden that wave of growth with the explosion of restaurant development. For an industry already dealing with increased competition for customer traffic, the pandemic and the dining restrictions that came with it only accelerated the shakeup.
According to the National Restaurant Association, as many as 110,000 restaurants have permanently closed across the country since the beginning of the pandemic. That translates to roughly 15 percent of all eating and drinking establishments.
The list of St. Louis-area restaurant closures due to the pandemic is long. Forced to survive without dine-in business, many couldn’t adapt to the new normal of takeout and delivery. The Gamlin Restaurant Group is a perfect example. Both Sub Zero and the Gamlin Whiskey House closed last year after more than a decade in Central West End. Both restaurants had been market leaders in St. Louis for years but were unable to endure the pandemic.
Smaller groups suffered just as much. Even concepts well suited for carryout such as St. Louis Wing Co. had challenges due to the pandemic. After operating in Rock Hill for 10 years, the restaurant recently shut its doors citing rising food costs and labor shortages.
While the pandemic accelerated the problems some restaurants were facing, it created opportunity for others. Despite the constant news of restaurants permanently closing, several were primed for expansion. Restaurants that were able to quickly pivot to online ordering and carryout seemed to fare the best.
The Syberg’s family of restaurants wasn’t deterred by COVID-19, opening Twisted Tavern in Arnold at the end of last year. The savvy operators behind Sugar Fire Smokehouse have doubled down on St. Louis with plans to expand their Chicken Out Concept and their burger joint, Hi-Pointe Drive-In. Each will be opening a location in Kirkwood this year.
The St. Louis market hasn’t seen the last of the restaurant shakeup caused by the pandemic. The pinch felt by oversaturation will remain, but the better operators will continue to adapt and be positioned to take advantage of new opportunities.
Outlook
As the economy continues to pick up and consumer spending inches back toward pre-pandemic levels, so too does the St. Louis retail market. Despite these accelerated trends, through the first half of 2021 retail has steadily gained momentum and I’d expect that growth to continue into 2022.
However, that growth is not without challenges. The Delta variant and mask mandates will be something to keep an eye on. In addition to that, supply chain issues, rising construction costs and labor shortages will continue to be a factor. While the COVID-19 pandemic is far from being behind us, the gloom of last year has dissipated and 2021 has brought hope for continued recovery.
Tim McFarland is director of retail brokerage services for Sansone Group. This article originally appeared in the September 2021 issue of Heartland Real Estate Business magazine.