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Due to the impact of the COVID-19 pandemic, the U.S. finished 2020 with a 3.5% decline in GDP and 6.1% decline in total employment. Retail, being one of the hardest hit sectors, has also experienced record lower growth in 2020. Despite the help of fiscal stimulus, annual total retail sales grew only 0.4%, the lowest since the Global Financial Crisis (GFC).

The pandemic has also accelerated the trend from physical to digital both from the consumers’  and retailers’ sides. Although many retailers are getting creative and innovative in serving their customers, we still see record breaking retail bankruptcies. According to S&P Global Market Intelligence,52 retail companies [1] filed for bankruptcies and this number exceeded any other years since 2009.

Q4 remained the most profitable time during the year for many retailers with consumers shopping during the holiday season. With this mindset, Sum of Markets retail fundamentals in Q4 remain largely unchanged.

For the Neighborhood Community and Strip sector, availability rates increase 3 basis points (bps) from Q3 and TW rent increased 0.2% from last quarter, largely due to an increasing amount of quality spaces being listed. Supply is still weak due to the pandemic’s impact on construction and investors/developers being cautious about retail investment. Completions in 2020 were only 65% of 2019's total completions, and 2020 is also the first year the NCS sector recorded negative net absorption since the GFC.

In terms of forecast, we expect the NCS sector to remain muted due to the pandemic, consumers and retailers shifting to e-commerce and continued large scale of retail bankruptcies and store closures.

We expect a major increase in the availability rate which is forecasted to reach its peak in Q4 2021 at 12.5%, 386 bps higher than the pre-COVID level.  This impact also surpassed the negative impact from the GFC, which produced a 370-bps increase in availability rate at its peak.  In terms of rent, we are forecasting a more gradual decline and recovery. We forecast that rents will fall and reach the bottom in Q1 2022. The bottom rent registers a 9.6% decrease compared to Q1 2020.

In the long term, we forecast the Sum of Markets availability rate will stabilize by the end of 2024 at 10.0% and rent will not be able to recover to pre-COVID level in the next 5 years.