• Announced Store Closings in 2021 Approach an All-Time Low

    Despite rising cases of breakthrough coronavirus infections and the resulting uncertainty over the efficacy of current vaccines against variants, the retail property market shows impressive signs of recovery at year-end.

    Retail sales have moved well above pre-pandemic levels for months, retailer profitability has been improving and consumption is setting all-time highs even as foot traffic at stores has improved significantly from last year's levels. However, perhaps the most compelling sign of recovery in 2021 is the sharp drop observed in announced store closings.

    Following 2020, a year that retailers set the all-time high for the amount of square feet announced for closing, 2021 is on track to set a new low, marking an encouraging reversal for this leading indicator of the health of the retail sector.

    Also, perhaps even more encouraging, the amount of space and number of stores retailers said they plan to open during 2021 is well above announced store closings, the first time that has happened since 2014. As of mid-December, just over 3,300 stores have been announced for closing, accounting for 37 million square feet of retail space. At the same time, retailers have announced more than 5,800 store openings, accounting for 53 million square feet.

    The most significant store closure news this year came from CVS in November when the company announced it would be closing 900 stores over the next three years, totaling nearly 10 million square feet. Meanwhile, announced store openings were led by discount stores, which continue to expand. Dollar General said it plans to open 1,000 stores in the coming years, and Dollar Tree is expecting to add 600 stores, including 200 Family Dollar locations.

    As expected, this has translated to much-improved leasing, including both new leases and renewals. In fact, November marks the ninth consecutive month where the amount of retail space leased outpaced the average from 2017 to 2019. And, while leasing in 2020 was 21% below the historic national average, the recovery in 2021 has pushed it 11% above the historic average.

    Although shortages in both labor and inventories will be a drag on sales for many retailers and may slow expansion plans for some, the positive signs in the retail market suggest a relatively positive outlook. In addition to the expansion plans announced by Dollar General and Dollar Tree, some of the largest leasers of new retail space in 2021 also include Planet Fitness, Burlington, At Home, Floor & Decor and Target.

    Retail trends, such as announced store closings, will be important for retail owners and investors to track as obstacles and uncertainty are still present in the market. While metrics such as foot traffic and retail sales are useful, they are backward-looking. Tracking announced store closings and openings can shed light on future retail demand, which can be valuable in predicting the future health of the market.

    Source: www.CoStar.com