Retail is among the hardest hit sectors in the commercial real estate industry. COVID-19‘s impact has greatly shifted the industry and accelerated its transformation. The impact on retail continues to be specific to tenant and property type. Essential retailers like groceries and pharmacies are doing well. Others like apparel, department stores, restaurants and bars, cinemas, and some other mall-based retailers are struggling with cashflow and rent payment.
Despite recent improvement in monthly retail sales data, a resurgence of COVID-19 cases poses concerns about additional temporary closures for retailers in regional hot spots. In addition, we are witnessing high-profile bankruptcies almost on a weekly basis, along with announcements of store closures. The rise of e-commerce, decreasing consumer consumption due to unemployment, increasing operating costs and changing consumer preferences are also major topics of discussion for both retail tenants and landlords.
Availability rate for retail neighborhood, community and strip centers was at 9% in Q2 2020, up 38 bps from the previous quarter. NCS registered a 0.2% increase in rent. The impact of the pandemic on rent and availability will likely be more visible in the coming quarters when both retailers and landlords determine their next steps.
We expect a major increase in the availability rate - over 400 bps higher than the pre-COVID level - which was forecasted to reach its peak in Q1 2021 at 12.7%. The availability rate will hover around 12.5% until Q3 2021 and start to come down. This impact also surpassed the negative impact from the Great Financial Crisis (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 rent will fall and reach its trough in Q1 2022, with a 7.5% decrease compared to Q1 2020. We also have other scenarios available. In our more pessimistic Downside scenario with deeper employment contraction, we are forecasting availability rate peak at 13.7% in Q3 2021. Rent will drop 16.8% in its trough compared to the Q1 2020 level.
Although we predict positive employment growth starting from Q3 2020, we are still expecting a prolonged deterioration and a gradual recovery for the NCS retail sector. Availability rate will stabilize by the end of 2025 at 10.5% and rent will grow slowly after reaching the bottom, but will not be able to recover to its current level.