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01/27/2021

Occupancy costs plagued non-essential retail tenants in 2020

Al Urbanski
Real Estate Editor & Manager
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In Q2 of 2020, apparel stores' occupancy costs exceeded 25% of their revenue.

For retail renters and landlords in 2020, there was little middle. Grocery and essentials providers like Walmart, Lowe’s, and CVS grew their businesses during the pandemic and widened their distribution channels on the web and in parking lots. Fitness, apparel, and cinema chains, meanwhile, struggled to pay the rent. 

“To retail, the pandemic was like a tornado that touches down in a neighborhood, destroying one house and leaving the next one untouched,” said Mark Sigal, CEO of Datex Property Solutions. 

When COVID-19 hit, Datex, a business intelligence platform for real estate owners and investors, created Tenant Track to track rent collections in malls and shopping centers. Checking adjoining brands on the full-year 2020 Tenant Track report is like looking at an overhead shot of intact homes beside leveled ones from the Easter Sunday tornado in Mississippi.

As the only numerical-named retailer on the list, 24 Hour Fitness sits at the top, just above Albertsons. In the second quarter of 2020, when the coronavirus swarmed and shutdowns ran rampant, the fitness chain paid just 8% of its rent while the supermarket chain paid 99%. In Q3, 24 Hour ratcheted up a little and Albertsons ratcheted down a little. Still, they were miles apart with payment scores of 25% compared to 97%.

Move to the L’s on the list and find a matchup that sums up the mightily different impacts weathered by apparel chains and takeout restaurants during the pandemic. In Q2, Lane Bryant paid basically no rent—less than a quarter of a percent—while the next brand on the list, Little Caesars, paid 95%. In the R’s, Regal Cinema put up 4% to Rent A Center’s 75%.

Occupancy costs went up across the majority of segments as a result of shutdowns and social distancing. It’s the percentage of revenue that’s needed to pay the rent, determined by dividing rent by sales. Putting up unheard-of numbers in this category were theater chains with average occupancy costs of 4410% in Q2, meaning that a theater with a rent of $4410 in a month did just $1 of revenue. Fitness chains recorded the next highest Q2 occupancy costs of 193%, followed by apparel chains at 25%.

Essentials providers, meanwhile, fared quite well. Supermarket chains registered occupancy costs of around 2% in the second and third quarters of 2020, and fast-food restaurants posted numbers in the 7% to 8% range.

“You want occupancy costs going down, and that was much harder to do in 2020,” Sigal said.