Mall sales are down 28% year to date, and that’s after a recent rally. Though the need for well-executed experiential retail in excellent locations remains, there’s a lot of uncertainty about how and when consumers will be able to revisit their favorite restaurants and shopping centers. From an underwriting perspective, buyers need to assume much higher vacancies, lower rents, and significant repurposing capital expenditures in even the best retail environments. Fearful enders have retreated from financing retail. All of these factors will continue to pressure pricing downward and create distressed opportunities in retail.
Industrial is the inverse of retail. Industrial buildings have benefited from the demise of retail centers. Because retail spending has shifted online e-commerce, companies need warehouses to store, distribute and return their products. Tenant demand and investor demand should keep this sector healthy, even in a recessionary environment. Covid has converted many older folks to online shoppers while confined at home. Many of these last holdouts are likely to become permanent online shoppers. Non-stores share of total retail sales jumped to 15% and 19% from April to May 2020. This is up from 10% in 2010, and this trend should continue to benefit the industrial sector.