Early during the pandemic there were questions on how much tenant rent was being collected by landlords. Datex Property Solutions1, a real estate portfolio management platform company, produces data showing that the total rent collections for national tenants during the first three months of 2020 hovered around 91%. (See Chart 1.) However, beginning in April 2020, rent collections fell to roughly 60%. While collections have steadily risen and stabilized since June of 2020, they stand at 91% as of July 2021. During the pandemic sales decreased dramatically for many tenants and leased rents that were negotiated based on sales volume were disrupted on an unprecedented scale, leading to a decrease in rent collections. Separately, national annualized sales per square foot figures at the category level2 and occupancy costs percentages3 are data that can be used to measure performance, gauge tenant health and help indicate a tenant’s capacity to pay rent.
Annualized Sales Per Square Foot Shifts
Throughout the pandemic many tenants faced drops in their sales levels due to in-store safety concerns and state mandates that limited capacity. As a result, some sales per square foot figures were dramatically altered and not all tenants were affected equally. As the pandemic lifts, we are beginning to understand what categories were affected most and what trends have emerged during the recovery.
As shown in Table 1, comparing pre-pandemic (April 2019– March 2020) and pandemic periods (April 2020–March 2021), movie theaters saw the largest decline (-85.0%) in sales per square foot. With many theaters forced to close or reduce capacity, sales psf for that large-venue tenant declined from about $134 to $20 psf.
Specialty restaurants, such as Chuck E. Cheese or Dave & Buster’s, that have an experiential element saw a 47% decline on a April–March year-over-year and falling from $164 to $87 psf. Fitness centers were also impacted by capacity restrictions and declined by 40% over the same period, equating to a decrease of $47 psf.
With need for home activities, the demand for pets and the search for value items and necessities, categories like craft stores (+10.4%), pet supplies (+7.8%) and dollar stores (+3.4%) all saw gains during the pandemic period compared to the same period in the prior year.
Occupancy Cost Percentages
Occupancy cost percentages consist of annual rents divided by annual sales and gives guidance on how much rent a tenant can pay, and that number varies depending on the tenant type. For example, an apparel tenant’s annual rent may represent 12% of their total annual sales while a drug store may be only 7%. With these data a landlord can determine the likelihood of a tenant’s long-term ability to pay rent consistently and ultimately measure the overall health of its property. Additionally, the data may also help landlords make decisions that can directly affect property values and capitalization rates.
Comparing pre-pandemic (April 2019–March 2020) and pandemic periods (April 2020–March 2021), movies theaters saw the largest health ratio percentage point (pp.) change of any category (+79.1 pp.). In the period prior to the pandemic, movie theaters operated with a health ratio of roughly 20% and rose to 99%. While far less significant, fitness centers saw a spike of 35.5 pp over the same period. Categories such as sporting goods (-1.1 pp), dollar stores (-0.6 pp), home goods (-0.3 pp) and craft stores (-0.1 pp) all saw slight health ratio improvement.
Annualized Sales Per Square Foot
On a rolling 12-month basis between July 2020 and June 2021, movie theaters show a sales psf of $27, the lowest of any category and representing a year-over-year (YoY) decline of 74%. (See Table 2.) Department stores (-11.3%), drug stores (-11.0%) are also down significantly YoY over the same period. Fitness centers remain significantly lower than pre-pandemic levels but are trending upward reaching $87 psf. However, the category remains down YoY by -4.4%.
Occupancy Cost Percentages
The average health ratios by category between June 2020 and May 2021 provide a glimpse into where retail and services tenants currently stand. Categories such as movie theaters (88.4%), fitness centers (31.7%) and specialty restaurants (23.5%) maintain the largest health ratios. On the other hand, department stores (6.5%), drug stores (6.3%) and beauty supplies are some of the lowest.
The relationship between sales and rent is a fundamental element to the success of many retailers and landlords. The importance of that balance was never clearer than during the pandemic. With these newly available benchmarks, ICSC members now have a resource that may help provide some guidance when making leasing decisions. While these figures are only available at the national level, they do serve, at the very least, as a starting point to customize calculations and evaluations. Going forward, these sales per square foot and health ratio data will be a resource available to ICSC members and can be accessed at QuickStats Industry Reports.
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