Retail is generally viewed negatively – are there areas of the sector which still have some appeal?
CA: From a retail perspective, the grocery-anchored space in the US remains the “darling” of the market. That was the phrase used recently by Melina Cordero, Managing Director of CBRE’s retail capital markets business for the Americas. Her explanation is that e-commerce is yet to significantly penetrate the groceries market.
According to Commercial Property Executive, average grocer sales range from $570 to $712 per square foot – comfortably exceeding the national average.
SE-R: The shift to online shopping is accelerating the trends in retail real estate. While the local food retail sector is booming, lots of investors are concerned about non-food retail; this problem will worsen over the next few years. Cities will need to take a broader view on this; how can they enhance future shopping experiences? The EU Renovation Wave initiative should work to create new areas of experience, more mixed and more resilient.
Do you expect landlords to increasingly take note of tenant cashflows when setting rents?
SE-R: Tenant solvency has always been an important factor in risk analyses when letting. Landlords will certainly take a closer look at the economic environment in which potential tenants operate. Hopefully they will find enough interested parties willing and able pay the required rent, but the gap in expectations between landlords and tenants is widening. It is not yet clear who is going to prevail in that tug-of-war. Discussions will intensify when leases expire and new negotiations are due. If buildings do not have the quality, flexibility and connectivity, or the ESG standard that tenants increasingly seek, it will have an impact.
CA: From a retail perspective, yes. Tenants have already set their maximum payable rent at a percentage of store sales. Now landlords are in the position of needing to partner with tenants in setting rents Levels will be decided according to affordability for tenants, rather than what landlords necessarily believe to be acceptable.