Despite bleak economic news this week, which showed the U.S. economy contracted at a record rate during the second quarter due to the ongoing pandemic, the local retail sector is hanging on, according to real estate experts, who say they’re not seeing significant numbers of lease defaults—yet.
Whether because small, local retailers serve niche markets or because of pent-up demand for services offered by restaurants and fitness centers, retail strip center landlords say their tenants are hanging on despite the many challenges.
“Southdowns Shopping Center is my jewel,” says Donnie Jarreau, who manages 1 million square feet of retail space. “When COVID hit, almost every tenant was completely shut down. Now, everybody is back open and almost back to normal.”
But for how long is the question.
Nationally, retail bankruptcies are growing by the week, and in recent weeks, several national chains have announced they’re shuttering local locations including Stage Stores, which has already closed its Siegen Lane store; Sur La Table, which is shutting down at Perkins Rowe after more than a decade; and Catherine’s, which will vacate 1,000 square feet in the Hammond-Aire Shopping Center.
“Right now, most folks are back to paying full rent,” says Jonathan Walker, a broker with Maestri-Murrell Commercial Real Estate. “The issue we see is we don’t think there will be much expansion in the retail space and we think there are going to be more tenants closing stores, so over time you’re going to have more retail vacancy than demand.”
That trend has been under way for the past decade. Walker and others say the pandemic has only exacerbated it. At the moment, there’s no end in sight.
“With the pandemic, the older demographic has gotten more comfortable with shopping online,” he says. “So the concern is really that vacancy is going to outpace demand in the retail world. There was a lot of vacant shopping center space before COVID. Now, there’s going to be a lot more.”