5Qs for Michael Wiener on the pandemic’s effect on real estate values

The pandemic has been unkind to all forms of shopping center inhabitants, from restaurants to fitness centers to decades-old specialty retailers. Those that survive, however, will find their real estate operations eased by center owners open to renegotiating their leases and offering better rates and terms on new leases. Excess Space Retail Services has long been a leader in reducing retailers’ real estate occupancy costs with lease renewal, lease restructuring, and disposition programs, so we spent some time with the company’s president, Michael Wiener, to lay out what opportunities now present themselves to retail chains.

Most retailers have come to terms with the pandemic and are bracing to contend with its ramifications for many more months. What are the real estate strategies of proactive retailers right now?
They’re re-working future plans by analyzing their store bases and evaluating where to make long-term commitments, in addition to reconsidering store count and their overall footprint. They are also analyzing where rent relief will be required to maintain certain stores and determine where they can take strategic advantage of the downward trend of market base rents in various areas of the country. 

We hear that retail brands with high liquidity have a unique opportunity to increase their market shares right now through property acquisitions. True?
If you have the resources and you’re, let’s say, a grocer, there are many opportunistic deals available where it makes good sense to strategically expand.  This is a tough time for many retailers and restaurant chains, but if they are well-positioned related to concept, they have a real opportunity.
 
What about the many retailers who have been severely impacted by the pandemic?
Right now, many non-essential retailers need to take a more methodical approach to executing their real estate strategy as obviously there’s a lot of uncertainty. They’re not yet sure if this most recent surge will require that they again approach landlords for additional rent concessions such as deferrals and abatements.  

They are asking themselves whether there will be continued downward pressure on rents due to an anticipated slow economic recovery.  We agree with the belief that rents in many areas of the country will continue a downward slide for some time. However, it’s my personal feeling that over the next year or so, all non-essential retailers should rigorously negotiate their lease renewals and extensions to proactively attempt to optimize their portfolios while market rents are still suppressed. Additionally, it is our opinion that many retailers will analyze their portfolios for potential store closures immediately after the holiday season.  

Has the evolution of physical retail been sped up by COVID-19, as most everyone in the industry is saying? Are big changes afoot?
There will be a lot of repurposing of real estate throughout the country, with last-mile industrial tenants likely leading the move into traditional retail locations. What’s most perplexing to me is that America's urbanization was one thing that hurt malls and drove many mall owners to redevelop and change their tenant mixes. It seems that due to the pandemic, this trend has now been reversed, with people fleeing densely populated cities for the suburbs. It remains to be seen how this reverse flight may impact the malls. Only time will tell. 

How long will this scenario play out? 
We think that the overall recovery will take roughly 3 to 5 years. During the next couple of years, there will be many opportunities to negotiate leases that will be more tenant-friendly in their economics and lease clauses.