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JLL: Retail vacancy to hit high of 5.7% in 2021; return to pre-COVID levels in 2024

Approximately 60% of retailers reported that they could not pay April rent, with many asking for three months of rent abatement—and several claimed they could not pay rent until stores reopened.

That’s according to JLL's 2020 Q1 Retail Outlook report, which analyzed more than 100 letters from national retailers to their landlords regarding April rents. Apparel and accessories retailers made up 41.5% of the tenants that asked for rent relief, followed by specialty/other (21%), dining (13.8%) and fitness/wellness (10.8%). 

Since the COVID-fueled shutdown took place around mid-March—near the end of the quarter—the full effects of COVID-19 on retail real estate fundamentals are yet to be seen, JLL noted.

JLL’s “moderate” forecast scenario calls for rents to decline approximately 5.5% this year. However, if consumer confidence and retailer sales rebound faster, it expect rents to fall by 2.1%. In the event of a more severe impact, retail rents will likely drop by 7.1%.

Regardless of the scenario, retail rent growth is expected to rebound and become positive in 2022, the report said. Retail vacancy is predicted to hit a high of 5.7% in 2021 and return to pre-COVID levels in 2024. 

The report revealed that net absorption for all malls in the U.S. dropped to -3.7 million square feet. Mall space vacated surged 83.1% from the previous quarter. Lifestyle centers were the only mall type without negative absorption. Class A malls continue to perform above average, with positive absorption of 382,000 sq. ft. in the quarter, while Class B and C malls struggle with negative net absorption. 

“We expect this to become even more pronounced later this year as retailers begin to file for bankruptcy and streamline portfolios, especially in the mid-priced apparel sector,” the report stated.

Power Centers
Power centers were somewhat less affected by the COVID-19 store shutdown than other shopping center types as many typical tenants, including home centers and pet stores, are deemed essential. Other retailers, classified as new essentials, have also kept stores open or provided curbside pickup.

Power center net absorption was -1.6 million square feet in the first quarter, causing vacancy to rise by 20 basis points to 5.2%. Move-outs jumped 30.4% from the previous quarter but fell 13.8% year-over-year.

Shopping Centers 
Shopping centers saw mixed results as a result of COVID-19. Typical center anchors like grocery and dollar stores saw outsized traffic and sales gains. But local, small business tenants and service tenants struggled amid stay-at-home orders in March and April. 

First-quarter net absorption in U.S. shopping centers, including community, neighborhood and strip centers, fell 245.6% to -5.8 million square feet. Move-outs rose 21.2% from the previous quarter and 2.8% year-over-year. Vacancy rose 20 basis points from the end of 2019.
 

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