2020 broke all the rules, ushering “unprecedented’ into our daily vocabulary and upending forecasts across industries. Despite this, we asked Rappaport representatives to brave the treacherous waters of prediction-making, for a glimpse of what they think 2021 holds for commercial real estate.

Event Horizon

We asked: ’What predictions do you have for retail eventing – like festivals and themed markets in shopping centers?’ Executive Director of Brokerage Michael Howard says this is where open-air lifestyle centers have the edge over malls. “The traditional mall shopping has been suffering for decades and the consumer wants to be ‘entertained’ while they shop,” he explains. “That is why the open-air lifestyle centers have flourished. I think combining festivals and themed markets into the open-air centers will be a huge hit. It will be the 2021 version of the food hall.”

Director of Brokerage, Kyle Gamber concurs, adding: “Lower admittance will increase ticket prices. Consumers seem much more comfortable with being outside; I’ve also seen a few ‘pod’ concerts that could make sense before a majority of the population has the vaccine.” Everyone is, however, quite clear that – as Leasing Representative Michael Leon says – “We will not see robust in-person events until a vaccine is widely available for the general public”.

Tech-Tok

Before 2020 “derailed” there was a growing focus on the technology aspects of retail, and it turns out tech was key, but not perhaps in the way many expected. With social distancing and shelter-in-place orders, tech-enabled services like online shopping and click-and-collect were the saving grace of many a store. Leon says we can expect to see the integration of online platforms with brick-and-mortar locations continue in 2021. “Retail spaces are becoming portals for consumers to interact with brands in the physical world, while still having the option to order online,” he says. Gamber says other tech to watch out for includes augmented reality (AR) marketing being used to drive in-store sales, as well as tech-enabled food services like delivery by drone and “ghost kitchens” that are all about food delivery.

Grub’s Up

Food delivery has certainly offered restaurants a lifeline in the past year and continued the rise of the ‘groceraunt’ trend. In 2020 this term was not just grocery stores that offer dine-in (as it had been used in prior years), but also restaurants that became local food markets. There has been considerable blurring in efforts to survive.

While the cause of that blurring may (hopefully) soon be under-control, our Rappaport experts think its effects are likely to linger with drive-thrus continuing to increase. “Curbside pick-up, too, seems like it has legs,” says Gamber. He adds: “Delivery/pick-up options have helped keep the lights on, but without alcohol, the business model is challenged. I’m using NFL attendance as an indicator of where we are in the recovery… and I don’t see real recovery [happening] until 2022.”

Howard believes that, although people will remain cautious and budget-conscious, people are still looking for something to do, and concerts and movies are pocket-friendly options therein. This is why he is expecting a bigger “bounce back for entertainment, especially live music venues and movie theatres”.

Leon walks the middle line, saying: “I expect that there will be a bounce-back, as there is significant pent-up demand for a return to normalcy, but our public health authorities also advise that some social distancing protocols will remain in place as the vaccine is rolled out. As such, I would say there will be a mixture of the two.”

Tentative Tenants

According to Howard, tenants remain concerned about the possibility of another pandemic breakout in 2021, and how they can keep their business viable. “They want flexibility to switch to a percentage rent structure or even cease operating for a period of time.”

This is reiterated by what Leon is hearing. He says: “For both tenants and landlords, the biggest concern I hear for 2021 is definitely additional occupancy restrictions and stay-at-home orders. It’s important for everyone to remember that we are in this together.”

Team Retail

“Together” really is the operative word for Executive Director of Leasing and Brokerage Jim Farrell. “Landlords and tenants have spent the past eight months doing a real-life fire drill or trying to plug the holes in the proverbial dike. These were necessary, short-term fixes, like rent relief, re-working drive aisles to accommodate outdoor seating for restaurants, and lobbying government officials for help.”

In 2021, he continues, “both parties will need to be more flexible than they’ve been in the past when it comes to negotiations, and commit to lasting, sustainable changes in their leasing processes”.

“If done right, space will be absorbed quicker, which is a win/win for everyone.”

Bonus Questions:

Q. What blogs or commentators do you think offer great retail insight?

Kyle Gamber: Morning Brew Retail, The Real Deal, and Fifth Wall.

Michael Leon: Nick Egelanian of Site Works is always interesting and on point.

Q. Any tips on negotiating deals going into 2021?

Mike Howard: Now more than ever, all parties to the transaction must find the proper balance of diligence, patience, and have willingness to listen to each other’s concerns.

Michael Leon: Be thoughtful, flexible, and creative. Don’t lose sight of the goal – adding value for your client with your knowledge, expertise, and problem-solving skills.

Jim Farrell: Tenants will need to bend on their exclusive-use provisions and relax some of their co-tenancy requirements. Landlords will simply need more flexibility and time since there will be more vacant spaces and fewer prospects, and they will need to be more pragmatic on their pro-formas and deal expectations. Finally, landlords should really dig into each retailers’ P&L statements—which tenants need to be willing to share—to understand their pain points.

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