It comes as no surprise that retail rent collections were down in 2020. However, even before the start of the pandemic, rent collections were already trending downwards.

While collections are increasing over their pandemic lows set last year, let’s examine three factors that led to the decline in the first place.

Record Store Closures

During the Global Financial Crisis, more than 20,000 stores closed their doors permanently between 2008 to 2009. Given the negative impact of COVID-19 on brick-and-mortar retail, one might think that 2020 would have set a new high watermark for store closings.  However, the rash of retail bankruptcies in 2019 forced many struggling chains to cut store locations. According to data compiled by Coresight Research, the firm tracked 9,832 closures in 2019, a 59% jump from 2018. Coresight predicted that there would be as many as 25,000 closures announced by retailers in 2020, but it ended up tracking just 8,741, along with 3,304 openings. UBS estimates that about 80,000 retail stores, which is 9% of total stores, will shut across the country by 2026.

Over Supply of Space

According to a 2019 analysis of per capita leasable shopping center space conducted by PwC, the report indicated that the U.S. has an estimated 23 square feet per person. In comparison, countries like France, Germany, the United Kingdom and Japan average about five square feet per person. At the end of 2020, there were 115,000 shopping centers across the U.S., compared with 112,000 in 2010 and 90,000 in 2000. Despite the rise in store closures over the last few years, research suggests that America still has far too much retail space per capita.

Source: PwC, ICSC

E-commerce Takeover

With a record amount of store closures over the past two years and the need to cut back on retail space, many retailers have prioritized the shift to digital commerce. In addition, online shopping served as a lifeline for retailers as the COVID-19 pandemic interrupted everyday consumer spending habits.

E-commerce spending increased by $900 billion, according to Mastercard’s Recovery Insights report and made up roughly $1 out of every $5 spent on retail in 2020. According to Digital Commerce 360 estimates, online spending represented 21.3% of total retail sales for 2020 and Amazon accounted for nearly a third of all e-commerce in the U.S.

As the retail industry rebounds from the initial effects of the pandemic, total rent collections stood at 87.7% at the end of March. Collections have increased by 40% since the second quarter of 2020 and are down about 7% from 2019.

Source: Datex Property Solutions

In 2021, while overall consumer spending will rebound sharply over 2020, we anticipate that e-commerce sales will shrink by 8% as consumers become increasingly more comfortable shopping and dining indoors. As retailers evolve their brick-and-mortar locations and in-store sales increase, retail rent collections will continue to rise throughout the remainder of the year.

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