Retail and Real Estate Industry Quarterly Report: 2021 Q1 Retail and Real Estate Industry Quarterly Report: 2021 Q1

Retail Real Estate Industry Report

Q1-2021

While the pandemic continues to impact the industry, ICSC’s Q1-2021 report reveals the highest level of consumer sentiment over the past year, with employment recovering and significant gains in sales. Our research has shown shopping center performance lagging as compared to pre-pandemic Q1-2020 performance—an expected result due to the severe effects of COVID-19. However, metrics for Q1-2021 show improvements within sales for the quarter as well as year-over-year sales. The general upward trends forecast continued growth toward industry-wide recovery in 2021. Scroll through ICSC’s Q1-2021 Report in full, or click to the individual sections using the navigation below.

Inventory | Retail and Food Services Sales Performance | U.S. Employment Situation U.S. Shopping Center Perform n |

RETAIL RENT COLLECTIONS AND DELINQUENCY RATES

The COVID-related business closures in March and April 2020 that resulted in a substantial decline in shopping center traffic led to significantly lower rent collection rates as retailers struggled to pay landlords. In early 2020, before the pandemic, rent collections hovered around 91% but plummeted to 57% in April and 59% in May. This in turn led to retail CMBS delinquency rates jumping to their highest levels (18% in June and 16% in July). However, as traffic recovered and rent collections rose, delinquency rates declined.

Retail and Food Services Sales Performance

Retail and Food Services Sales* Performance and Overview**

Non-Store Retailers

Food-and-Beverage Stores

General Merchandise Stores

Food Services and Drinking Places

* Seasonally adjusted ** Excluding motor vehicles, auto parts and gasoline

U.S. Dollars (Millions)

Sales

Month-to-Month Growth

January

February

March

Q1-2021 Overall Sales

$1.3 Trillion

+6.6% Q-o-Q

Health and Personal Care Stores

Source: U.S. Census Bureau

U.S. Employment Situation

In Q1-2021, the retail sector added 65,700 jobs, gaining 72,300 jobs at store-based retailers, but losing 6,600 jobs at non-store retailers. Though positive, this overall increase is roughly half of the Q4-2020 gains and far fewer than the jobs added in Q3-2020. The food services sector gained 458,400 jobs in Q1-2021, a significant turnaround from the 190,000 jobs lost in the previous quarter. Despite the added jobs in the retail and food services sectors, neither have regained all the jobs lost in March and April last year.

U.S. Employment (in Thousands)*

U.S. Shopping Center Performance Benchmark

* Seasonally adjusted

Source: Bureau of Labor Statistics

Store-Based Retail Non-Store Retail Food Services and

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January 14,577.70 February 14,589.80 March 14,621.30

Store-Based Retail

Non-Store Retail

January 600.60 February 602.90 March 604.20

Food Services and Drinking Places

January 10,019.00 February 10,355.60 March 10,455.30

January

February

March

Source: NCREIF and ICSC Research

Consumer Engagement

Source: ICSC Research

Shares of Monthly Expenditures by Channel – Q1-2021

Shares of Total Monthly Expenditures at Physical Establishments (Open-Air + Freestanding + Malls)

Source: ICSC Research

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Northeast

Midwest

South

West

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West

Million

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South

Million

125

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Midwest

Million

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Northeast

Million

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CONTENTS

Fueled by federal economic stimulus payments, strong job growth in March, continued reopenings and vaccinations, retail and food services sales (excluding motor vehicles, auto parts and gasoline) surged in Q1-2021 to $1.3 trillion. Compared to the previous quarter, Q1 sales rose 6.6%, second only to the quarterly jump in Q3-2020 (+12.1%). Year-over-year sales grew 11.3%, far surpassing the previous record set in Q1-2006 (+7.4%).

Sources: Datex Property Solutions, Trepp

On a rolling four-quarter basis (Q2-2020 through Q1-2021), base rent at shopping centers across the U.S. decreased 8.9% compared to the previous four quarters. In Q1-2021, base rent declined 11.7% from Q1-2020 when rent levels reached their peak. Although NOI at shopping centers across the country fell 18.1% during the past four quarters, NOI decline in Q1-2021 was significantly lower than in the past year, due in part to expenses falling for the first time during the pandemic. Occupancy rates for the shopping center industry as a whole began 2021 at 89.7%, the lowest level since Q2-2012.

Compared to Q1-2020, the shares of consumers’ total monthly expenditures at open-air centers and malls declined slightly in Q1-2021, while the shares allocated to freestanding locations increased. There was also a rise in the proportion of total dollars spent online from both brick-and-mortar retailers and internet-focused retailers. In comparison to Q4-2020, when holiday season shopping patterns were in play, consumers allotted fewer dollars to malls and online retailers in Q1-2021, slightly more to freestanding establishments and significantly more to open-air centers.

3.3%

Online via brick-and-mortar retailer

2.7%

Online via Internet-focused retailer

15.8%

Malls

33.3%

Freestanding Establishments

44.9%

Open-Air Centers

Thematic Survey: Post-COVID-19 Trends

Following the third wave surge of COVID-19 cases early in 2021 and economic uncertainty, there was a gradual rise throughout Q1 in the percentage of U.S. adults expressing positive sentiments about current and future economic conditions. The latest shares of optimistic adults are at their highest levels since tracking started in April 2020. We expect consumer positivity to grow as vaccination rates rise, virus cases fall and the overall employment situation improves.

Consumer Economic Sentiments

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Q1 Sales by Tenant Category

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Rent Collection and Delinquency

Retail and Food Services Sales Performance

U.S. Employment Situation

U.S. Shopping Center Performance Benchmark

Consumer Engagement

Thematic Survey: Post-COVID-19 Trends

Shares of U.S. consumers

Percent Change

Building Materials and Garden Equipment/Supplies Dealers

Percent of U.S. Adults

April 10-12

Economic situation will "IMPROVE" over the next 12 months

Current economic situation "BETTER" than a month before*

4.3%

Online via brick-and-mortar retailer

3.6%

Online via Internet-focused retailer

13.6%

Malls

34.7%

Freestanding Establishments

43.9%

Open-Air Centers

Shares of Monthly Expenditures by Channel – Q1-2020

Following Q4-2020 when consumers ramped up their spending on goods as they prepared for the holiday season, consumers allocated fewer dollars to goods in Q1-2021. A higher percentage of expenditures went to dining and other services in Q1 as more of those businesses reopened and pandemic-related capacity restrictions eased. Compared to the same period one year earlier when the pandemic was getting worse, consumers allotted a smaller share of expenditures to goods in Q1-2021 as less was being spent stocking up on merchandise. The percentage of dollars that went to dining and other services in Q1-2021 was higher than a year ago.

Source: ICSC Research

Drinking Places

Year-Over-Year Growth

+11.3% Y-o-Y

January 15-17

87%

Currently shop at small businesses.

Expect businesses to maintain health and safety precautions even as the COVID-19 situation improves.

82%

Expect physical spaces to play a major role in the consumption of goods and services a year from now.

62%

Living a healthy, well-balanced lifestyle is more of a priority today than in the past.

78%

Will likely cut back having online orders shipped home as comfort levels when visiting stores rise.

52%

Would like to see more brands that only sell online open stores to visit.

52%

*Reference period changed from "2 weeks before" to "a month before" in October 16-18 survey.

Retail Rent Collections (Left Axis)

Retail CMBS Delinquency Rate (Right Axis)

Feel more connected to brands and comfortable with product purchases when visiting physical stores.

67%

Will likely increase spending and cut back on savings as life returns closer to normal.

40%

June 5-7

July 17-19

October 16-18

February 12-14

March 5-7

April 2-4

Rent Collection and Delinquency

Retail and Food Services Sales Performance

U.S. Employment Situation

U.S. Shopping Center Performance Benchmark

Thematic Survey: Post-COVID-19 Trends

Consumer Engagement