Retail had a turbulent and uneven ride during the COVID-19 pandemic, but a broad recovery should follow once most Americans receive a vaccination.
It goes without saying that 2020 was an incredibly challenging year for many brick-and-mortar retailers as pandemic-related restrictions made turning a profit an uphill battle.
Although recovery likely won’t be linear, and some sectors will get back to pre-COVID levels faster than others, 2021 should see cities all over the country lift these restrictions and allow businesses to operate at normal levels.
The commercial real estate industry could see vacancies fall as a result. Nevertheless, some of the economic pain was delayed as businesses struggled to get to the other side of the pandemic—so additional foreclosures are in the cards. And some risk factors remain, including coronavirus variants extending lockdowns and online shopping becoming an even more common replacement for brick-and-mortar options.
Here’s a look at what we might expect from the retail industry in 2021:
An economic recovery
It’s reasonable (though not certain or specific) to expect a broad economic recovery in 2021, as more people will return to work, more businesses will reopen, and more money is pushed into the economy.
Naturally, this bounce-back will rely on a successful vaccine rollout and these shots working to control emerging COVID variants. There is a reason for optimism, though, as President Joe Biden believes there will be enough doses for every adult in the country by the end of May. Nevertheless, as with the recession, a recovery could be incredibly uneven depending on the industry.
Overall, retail sales recovered adequately after the initial lockdowns in April 2020, with spending exceeding pre-pandemic peaks in July and August. These numbers happened even with restrictions in place in much of the country, so high retail sales numbers should be expected this year.
At the same time, not every retail sector did well. For example, clothing store sales were over 21% lower than their pre-pandemic levels. In contrast, home improvement shops, grocery stores, and sporting goods retailers had higher-than-average sales last summer. Of course, e-commerce took off during the pandemic, securing a larger piece of the retail pie than ever before. And it’s a safe bet that online shopping will continue to grow because more people are comfortable with it, accelerating this fundamental shift.
A closer look at online shopping
It should come as no surprise that online purchases increased by over 30 percentage points at the height of COVID, as many consumers had no choice but to buy their goods digitally.
What’s noteworthy about these numbers is that some of the most significant gains were in the personal care, pharmaceutical, home furniture, and electronics industries, so people were buying everything from essential goods to luxury items online.
Jessica Liu, co-president at the e-commerce multinational Lazada Group, projects not only will more people shop online in 2021 than ever before, but local small and medium-sized businesses will have to get in on the action to stay afloat. The trend will create an even more robust online shopping environment where consumers don’t necessarily have to rely on Amazon and other e-commerce giants.
How commercial real estate investors can adapt
As it stands, there could be tremendous upside in commercial real estate investment in 2021, particularly in the latter half of the year. However, it could take some creativity to determine how to leverage the recovery—and where it will occur—when shopping returns to stores.
If online shopping remains as popular as it has been during the pandemic, warehouses and fulfillment centers will continue to be a good investment as more stores—both e-commerce and newly hybrid retailers—will need these spaces.
Likewise, there is a strong assumption that consumers have been missing the in-person shopping experience. So the broader brick-and-mortar retail environment may return to pre-pandemic levels, even in hard-hit sectors like clothing. Investors will want to keep tabs on the latest trends, as we’re entering a once-in-a-generation recovery period that could go a number of ways.
Getting CRE perspective and assistance
Since so much will likely change in the retail environment in 2021, flexibility likely remains paramount—and due diligence certainly will. Consumers have never had as many choices when seeking goods, and the entire globe is now a marketplace that can serve buyers anywhere. Commercial real estate investors must carefully evaluate individual investment opportunities and assess how consumers want to do their shopping if they consider retail-related properties.
Morris Southeast Group has the insight, market knowledge, and resources to guide you through the real estate decision-making process. Call us at 954.474.1776 to inquire about the current trends in South Florida CRE. You can also contact Ken Morris directly at 954.240.4400 or kenmorris@morrissegroup.com.
