Third Quarter STNL Report

In the days of coronavirus, it’s easy to become overwhelmed by all the bad news splashed across newspaper headlines, television chyrons and on social media. At Ground + Space, we strive to find the silver linings in even the most desperate of situations in order to provide our clients with a more comprehensive outlook on the economy as it relates to the commercial real estate sector. Let’s take a look at some of the major takeaways from the first few weeks of the third financial quarter of 2020:

STNL Properties are Poised for Success

Popular single-tenant net leased (STNL) properties include many essential retailers. Quick-service restaurants (QSR), auto parts stores like The Tire Choice, convenience stores, home improvement retailers and drugstore giants like CVS Pharmacy have all survived the COVID-19 pandemic relatively unscathed thus far. Not only are net-leased assets showing resilience in the face of a global pandemic, they are also properties that continue to attract capital in times of economic downturn.

What’s the secret to their success? Numerous national chains—like Wendy’s and McDonald’s—were aided by in-place drive-thru service, while more traditional restaurant chains and other brick-and-mortar essential retailers benefited from robust delivery, carryout and curbside pick-up platforms. Although many of these retailers reported a dramatic decline in foot traffic, those same retailers have seen profits soar as consumers increase the size of their receipts. Lowe’s and The Home Depot in particular set record highs for sales in the second financial quarter.

Power and Lifestyle Centers Outperform Expectations

Traditional enclosed shopping centers and malls have long been on the decline, but lifestyle and power centers have remained top of mind for both investors and consumers. The prevalence of essential retailers in these types of shopping centers—especially well-known grocery anchors like Whole Foods—has allowed operations to remain strong. In fact, only six percent of net absorption for the year thus far has occurred within this particular sector. A whopping 25 percent of newly vacant space has occurred at malls as retailers like GNC, Victoria’s Secret and Gap announced massive closures. As the market resizes, power and lifestyle centers will most likely attract both tenants and shoppers from malls as they begin to close for good.

Consumer Spending Begins to Recover

Although there has been little progress made regarding extending benefits from the original COVID-19 stimulus package, some segments of the country’s population have begun spending again. By June, many markets saw retail sales increases near pre-pandemic levels. However, only time will tell if this trend will continue into the third and fourth financial quarters. Several states have slowed or halted their reopening plans as new clusters of positive COVID-19 cases arise. If these trends continue, consumer confidence and, in turn, consumer spending, may decline yet again.

Ground + Space is Here to Help

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond.

Stay Safe and Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.


Coronavirus Update: State of the Market

The month of July shattered records for new coronavirus cases, hospitalizations and deaths. Unlike in the months of March and April, the epidemic is affecting both urban and rural areas in equal measure. The effects of social distancing, store closings and high unemployment have led to an economic downturn, which has impacted even the strongest segments of the commercial real estate sector.

Commercial Real Estate Prices Wane

As expected, prices for commercial real estate assets weakened in the second financial quarter of 2020. Properties with a smaller price tag (between $1-$4 million) fared better than their higher-priced counterparts, which saw a decline in activity of around 38 percent. Sales totals are also down when compared to previous years. However, this pricing weakness was not felt in every sector. The industrial sector was the only property type index to post gains. This is due in large part to the accelerated adoption of e-commerce, which has in turn supported industrial demand for warehouse space.

GDP Declines in Second Quarter

The United States saw the sharpest decline in its gross domestic product (GDP) in the second fiscal quarter of 2020 since the federal government began tracking this data in 1947. From April to June 2020, the GDP fell at an annualized rate of 32.9 percent. This was due in large part to the widespread shutdown measures imposed by governors across the country as COVID-19 began its resurgence.

To put things into perspective, the GDP only fell by 8.4 percent during the worst three months of what is now called “The Great Recession” in 2008. Economists expect GDP growth to return in the third financial quarter, but the rate is largely in question as more states are pausing or reversing their lockdown orders.

Retailer Spotlight: Wawa

Although the list of retailers filing for bankruptcy grows larger on an almost daily basis, some popular retailers are taking proactive steps to provide long-term solutions for a post-coronavirus world. One such retailer is Wawa. The Pennsylvania-based convenience store chain recently announced plans to build its first-ever freestanding drive-thru location in Township, Pennsylvania. This will be the brand’s first store focused solely on drive-thru and curbside pick-up services for its customers.

According to Terri Micklin, Wawa’s Director of Construction, the company hopes to “learn from the layout, workflow and traffic flow at this location” as Wawa explores multiple alternatives to its traditional store formats. At least one other Wawa property currently under construction—this one in Westhampton, New Jersey—will benefit from a drive-thru feature.

Ground + Space is Here to Help

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. Are you looking for advice on whether to sell one of your assets? Please contact one of our brokers for specialized guidance during this time.

Stay Safe and Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.


The Future of the CRE Market

The United States economy is feeling the effects of COVID-19 since all non-essential sectors have been in a near-total shutdown since mid-March. Most states around the country won’t be lifting lockdowns and shelter-in-place orders until at least the end of May. The COVID-19 pandemic has sent the country’s unemployment rate soaring to a record 14.7 percent, a level not seen since the end of the Great Depression.

Over the course of the next few weeks, many retailers will slowly begin to open their doors to customers for the first time since the pandemic began. While this is a good sign, the success of any reopening effort will be determined in part by the average consumer’s willingness and ability to venture out to purchase more than essential items like groceries and gasoline.

Economists do not have an answer as to what the full impact of COVID-19 will be on the U.S. economy. However, most economists do agree that there will be a significant negative effect, both in the U.S. and across the globe. How will all this economic news affect the commercial real estate (CRE) market? Let’s take a look.

Sharp Spike in E-Commerce Sales

Several major retailers have been hit hard by the effects of COVID-19. Those retailers who had yet to adjust to changing consumer habits have had to turn to bankruptcy and outright closure over the past few weeks. Some of the retailers affected most by the pandemic are J.C. Penney, Neiman Marcus, Stage Stores, J.Crew and Pier 1 Imports.

On the other hand, retailers like Kohl’s have seen a spike in digital sales even as their brick-and-mortar stores have been closed for at least two months. Online sales grew to a staggering 60 percent of the brand’s total sales in the month of April, and that trend is expected to continue. Walmart has also seen skyrocketing digital sales, led by strong results for grocery and delivery services. Walmart also benefited from being designated as an “essential business.” Throughout the pandemic, all of the retailer’s U.S. stores remained open.

The Health of the CRE Market

The health of the CRE market going forward will be determined by the approaches retailers take to reopen storefronts and the impact of increased e-commerce adoption rates. Many economists anticipate that consumers will continue to rely heavily on e-commerce transactions. Retailers both large and small that can provide customers with a digital shopping platform will fare better than those with no online presence. While standalone retail assets should bounce back to pre-coronavirus levels once treatment plans are in place for COVID-19, many mall anchors, full-priced apparel retailers and mom-and-pop stores in small strip centers might not be so lucky.

Sales activity in the CRE market has fallen by approximately 17 percent since the pandemic began. Despite this sharp decrease in activity, capitalization rates have remained steady. Rates have fallen by only about seven basis points according to CoStar data. Most investors and landlords are focusing on rent collection and vacancy concerns for the time being, but there is still a demand for high-quality SNTL retail.

Experts in STNL Retail

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several outstanding retail assets on the market right now. Our CVS Pharmacy listing features a NN corporate-guaranteed lease that was recently extended by 20 years. The Tire Choice property that is currently available is situated within a dense retail corridor in The Villages, Florida and boasts a brand-new 20-year NNN lease. Our team is committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The market changes daily, so please contact one of our brokers for specialized guidance during this time.

Stay Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.