The retail fallout in a post-pandemic world is sweeping across every U.S. market and is expected to leave hundreds of millions of square feet vacant while driving rents and valuations lower.
By categorizing retailers based on their S&P credit ratings, CoStar managing director and senior economist Abby Corbett said those rising to the top of the at-risk category are hardly surprises. Corbett used the S&P rating of BBB- or lower to flag those at risk. She also looked at retailers cited as at risk by other credit rating firms.
Her findings: J. Crew, Neiman Marcus and Pier 1 Imports, which have all filed for Chapter 11 bankruptcy protection, were in the at-risk category, as were At Home, J.C. Penney and Sears. At-risk tenants also include many restaurant groups, such as Cracker Barrel, Denny’s, Landry’s, Wendy’s and Yum! Brands, according to Corbett.
Those at-risk retailers encompass a footprint of more than 700 million square feet, equal to some 4.5% of total retail inventory across the nation.
“Of course, thousands of smaller independent retailers also face grave risks,” Corbett said in a new video, “but these large institutional occupiers anchor thousands of malls and shopping centers across the country.”
What’s more, their presence, or lack thereof, “could prove very difficult to replace,” she said.
“Our base-case forecast calls for as much as a 100 million square feet to go dark over the next year,” she said. Given the new imbalance of supply and demand, Corbett sees rents falling.
“The double-edge sword of declining occupancy and rents will take a bite out of net operating income and translate to widespread valuation declines,” she added.
How pervasive might that be? Hard to say, because there is “virtually no trading activity,” leading to very little pricing information. Stay tuned as those numbers surface in coming weeks.