“It seems like we’re starting to turn a corner,” said Michael Combs, associate field research director in San Diego for the commercial real estate brokerage CBRE.
“When you look at consumer spending and a lot of the money getting into people’s pockets through legislation or just from people getting back to work, it generates optimism about the retail sector, especially as businesses are getting closer to operating under more normal circumstances,” Combs said. “Businesses that have been most directly impacted are starting to see the light at the end of the tunnel and forming new ventures given that there’s space available.”
Combs said new leasing activity and lease renewals picked up in the first quarter.
“It’s looking more similar to what we were seeing on average from 2016 to 2020,” Combs said.
Combs said food service vendors are likely to be the market segment that recovers soonest as people are eager to go back to dining out and gathering with friends in bars.
CBRE in its first quarter report for 2021 noted that “COVID-19 continued to hamper the retail market at the beginning of the year, but the situation improved significantly late in Q1, spurring optimism for the remainder of the year.”
“Leasing activity appears to be stabilizing, most recently driven by fitness centers and health and social service providers,” according to CBRE.
Craig Killman, executive vice president and retail advisory lead of the commercial brokerage JLL, said shopping centers he represents have no difficulty filling space.
True, some retailers have gone out of business, but Killman said others are stepping in to lease the space they’ve vacated.
“There’s a tremendous amount of activity in retail right now,” Killman said. “If it was a store closure in a better shopping center, like the Forum Carlsbad, I’ve always had a warm bench of tenants that wanted to go into that property.”
Killman said foot traffic in shopping centers has picked up significantly.
“There’s definitely more people going in and out of stores,” Killman said. “It’s nowhere near where we were in 2019, not even close, but definitely better than a month ago. I see nothing but good things happening for the rest of the year once we get a little bit further along in the vaccination process and our numbers continue to come down from an infection percentage.”
Killman, who also represents AMC Theaters, said the movie theater chain is talking of getting back in the market.
“I’m having conversations with AMC again with what the next generation theater is going to look like and when we’re going to see some deals,” Killman said. “They will expand opportunistically for the right opportunity. It would have to be the right opportunity, it would have to be the right project, it would have to be the right economics.”
Naveen Jaggi, president of retail advisory services for JLL, wrote in a commentary on the retail market nationally, that U.S. Census Bureau figures “showed an explosion in sales” between March 2020 and March 2021.
The result “provides concrete evidence that the retail sector is well on its way to recover,” Jaggi wrote.
“March 2021 retail clothing stores saw a 101.1% increase from March 2020. And from the previous month, retail and food services sales increased 9.9%,” Jaggi wrote. “With an additional 916,000 jobs added last month, more money is streaming into the economy. And as consumer confidence and demand continues to grow, we expect the sector to continue its strong rebound as we emerge from the pandemic.”
Better Than Expected
One retail center that is weathering the pandemic is the newly built One Paseo in Carmel Valley that includes office and residential space.
Built by Kilroy Realty Corp., the retail section of One Paseo reached full occupancy in late 2019 just before the COVID-19 pandemic hit.
“There’s a lot of folks doing better post pandemic than pre-pandemic,” said Brian Lewis, senior vice president of retail development for Kilroy.
Of the 44 retail tenants at One Paseo, three were forced to close because of the pandemic.
“As I tell people, the pandemic is a great accelerator. It makes bad situations worse,” Lewis said.
The businesses that closed were struggling prior to the pandemic, he said.
“For some of them, it was just a parade of horribles, Lewis said. They couldn’t get product, either because their supply lines were cut by the pandemic or they relied on trade shows that were canceled.
“It was more a casualty of war,” Lewis said.
The outlook moving forward is far better.
“2021, the back half is going to be a lot more positive than people are anticipating,” Lewis said. “We’re very optimistic about the back half of 2021 and we’re in a situation to welcome all our friends from the surrounding trade areas and the work force back.”
Retail Market Turns Corner