new normal

2021’s New Normal vs. 2019’s Old Normal in retail

Brick-and-mortar retail has long been an industry that is defined by survival of the differentiated. What can be commoditized, de-localized, or digitized likely will be. We’ve all watched category after category get Amazon’d and relegated to the dustbin of history. (Blockbuster Video, anyone?)

Attempting to make sense of this upheaval is the Datex Tenant Track, a monthly report derived from the largest database of validated rent collections and retail sales data in the United States. Reflecting data from thousands of shopping centers and tens of thousands of retailers, the report was originally created to help landlords and merchants make data-driven decisions while maneuvering through the COVID-19 pandemic. Since then, it has been embraced by landlords, tenants, brokers, banks, the media, and the Federal Reserve.

Datex’s 2021 Year End Report looked at the “new normal” of 2021 as compared to the “old normal” of pre-COVID in 2019. Because 2020 was such an outlier, we decided to use 2019 data to properly gauge the recovery. What does the data tell us about the outlook for 2022 and beyond? Three key trends stand out.

1. The New Normal is starting to look like the Old Normal. The overall health of retail improved quarter by quarter over the course of 2021 as evidenced by rent collection trends that improved quarter by quarter. Retail tenants overall finished the year paying 91% of their rents, just a shade below 2019. National chains outperformed 2019 numbers, paying 96% of their rent in 2021. The White House this week reported that 75% of American adults have been vaccinated; 77 million Americans have contracted the disease and developed antibodies. Society is adapting to a virus that is now endemic and the recovery should continue into 2022.

2. Increasing rents indicate leasing activity is high. We saw rental rates increase 3.88% in 2021, outpacing rental rates gains in 2019 by 7.99%, with the top-performing categories outpacing these numbers, suggesting that tenants and landlords alike are reading the tea leaves and like what they see.

3. Not all retail categories were uniformly impacted by COVID-19. The onslaught of COVID-19 was akin to the impact of a tornado, where some categories were largely untouched, and others were roundly destroyed. More fundamentally, because the pandemic changed consumer behavior over a prolonged period of time, it’s reasonable to ask if these will be permanent. At one extreme, you have clear winners, like:

Food, Drink and Dining: Here, tracked categories such as fast food (Chipotle, McDonald’s, Subway), restaurants (Chili’s, Cheesecake Factory, Red Lobster), and specialty food (Jamba Juice, Dairy Queen, Starbucks) absolutely crushed it. Case in point: full-year sales 2021 vs. 2019 increased by 9.85% for restaurants, 17.65% for fast food, and 14.23% for specialty food. The one outlier was specialty restaurants (Chuck E Cheese, Dave & Buster’s, Hooters), a category that saw sales contract by 17.46% owing to social distancing and other COVID-related restrictions in the pandemic.

Supermarkets: The irony for supermarkets, which officially became an endangered category when Amazon bought Whole Foods in 2017, is that the pandemic was restorative with 2021 sales increasing 17.64% and occupancy costs falling 23.30% versus 2019 numbers. Even more ironic is that, while drug stores are commonly adjacent to supermarkets, their numbers tell a different story, with 2021 sales down 30.94% and occupancy costs rising 48.66%, suggesting that consumers may have shifted more of their spend to online retailers, such as Amazon.

Sporting Goods vs. Fitness: Consumers built up their home gyms, driven by shutdowns at gyms and fitness studios. This catalyst was a growth driver for sporting goods, yielding a 9.83% increase in sales and a 36.63% drop in occupancy costs in 2021 vs. 2019. By contrast, fitness saw sales drop 22.18%, occupancy costs rise 48.51% and rent payments fall 9.52%. Those trends, however, improved quarter by quarter over the course of 2021, suggesting fitness has a real chance to rebound.

At the other extreme are movie theaters. Home theater setups are excellent and affordable. Movie studios are shortening or eliminating release windows between theaters and online streaming networks. These factors, plus continuing consumer reticence to sit for two hours in crowded theaters, drove sales down 61.44%, occupancy costs up by 210%, and rent collections down 33.97%, suggesting serious risk to the category.

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