By Tory Glossip, Managing Director, Colliers
Puget Sound has 553,566 square feet of retail under construction, comprising 0.4 percent of existing inventory. The market dynamic will keep retail property values in the Pacific Northwest higher than most U.S. markets that are overbuilt. Puget Sound’s retail market posts rents 30 percent above the national average at $20.71 per square foot.
Pricing is traditionally a function of supply and demand. In the retail world, that demand relies partially on income. The most expensive markets to lease retail space also happen to have the highest incomes…by far. Despite ideas in some circles that retail is dead, physical footprints will continue to be an important part of the retail landscape, although less so in downtown areas until workers return to the office.
Tory Glossip, Managing Director, Colliers
Most consumers have retreated to submarkets, leaving retailers to explore alternative options to use their property more effectively. Brands are expanding their reach with small-format stores and cross-promoting their products and services in showrooms. Many are leveraging smaller footprints into touch-and-feel locations that seamlessly blend online browsing and in-store purchasing. The shopping mall as we know it will have a different look and feel post-COVID. With big box retail reallocating existing space into localized fulfillment centers, others are exploring free-standing properties that provide ample space for curbside pickup and drive-thru amenities.
Rents are expected to decline further over the coming quarters as space give-backs weigh on vacancy. We forecast retail rents to fall around 3 percent in 2021 and begin to return closer to pre-pandemic levels in 2022. Rent collections remain an important theme across the retail sector. Total rent collections have increased by more than 50 percent since the beginning of the crisis, with 86 percent of total retail rent collected in the U.S. at the end of 2020. This is compared to 2019 when 91 percent of total retail rent was received, thus bringing the retail market closer to pre-pandemic levels and demonstrating stabilization for retail tenants.
3 Things to Watch in 2021
1. The Retail Landscape Transformation
We will continue to see more and more retail properties re-purposed as the pandemic has accelerated development surrounding the types of spaces Americans actually need. The U.S. is currently over-retailed with an estimated 23 square feet per person compared to places like France, Germany, Japan and the United Kingdom, which average less than 5 square feet per person.
2. Ecommerce Will Gradually Cutback
Online commerce was thrust into the forefront at the peak of the pandemic as many brick-and-mortar shops were forced to close due to coronavirus restrictions. Though online sales grew by more than 30 percent in 2020, we anticipate ecommerce sales in 2021 to contract by 8 percent as physical stores reopen and allow for more in-store purchases.
3. Omnichannel Retailing Leads the Way
Retailers will continue to offer multichannel options to consumers in 2021. This will strengthen the position of stores in the retail ecosystem not just as places to sell but as locations to fulfill and service online demand. Social commerce will also become more prevalent as retailers reach new audiences via TikTok, Facebook, Instagram and Pinterest.