To say the retail property sector took a beating in 2020 is an understatement. The COVID-19 pandemic and ensuring lockdowns resulted in a whopping 15,500 stores closing in 2020 alone, and many predicted that brick and mortar businesses, in general, would not recover from the loss. Indeed, many stores have shut down for good, never to return. At the same time, as other experts note, the massive closures have actually helped the market bounce back faster than it may have otherwise. However, it looks like the retail property sector should rise in value in 2022.
The lockdowns, which eliminated stores that were already struggling to turn a profit, made it easy for investors to identify stores that have the strength and customer base to successfully operate long term.
Which Anchor Stores Perform the Best?
Anchor stores that performed the best in the last two years are grocers, food retailers, and select retailers selling essential items. Dollar stores such as Dollar Tree, Family Dollar, and Dollar General thrived in 2020 and continue to do so. Home improvement retailers have also performed well in the last two years, as have big box stores such as Target.
Pharmacies, on the other hand, have struggled to generate enough sales to justify multiple retail locations. Rite Aid, for instance, closed more than sixty outlets in 2021. CVS closed more than three hundred stores. Luxury stores that were previously considered stable anchors for retail strips, including Lord & Taylor, J Crew, JC Penney, Pier 1, and Stein Mart, shut their doors permanently. Others have restructured, but only time will tell if they will be successful in gaining and retaining the large customer base they need in order to turn a profit.
What are the Best Investment Options?
Grocery-anchored strips are currently the most coveted retail real estate asset by far. Many investors are making aggressive moves to purchase these assets; however, they aren’t the only worthwhile asset on the market. Unanchored strip retail centers are gaining attention from investors, even though they require a greater investment of time and resources than grocery-anchored strips.
Power centers are also getting a second look from investors; they were not widely popular pre-COVID but have remained relatively resilient over the last two years. Not all investors are putting a premium on investments of this scale but real estate investment trusts and other operators familiar with investing and managing power centers are showing renewed interest in this investment option.
A Time of Opportunity
Experts expect to see a lot of activity in the retail property sector in 2022. And it’s not hard to see why. Underperforming retailers have been weeded out of the market. In turn, this makes it easy for buyers to see which anchor stores will perform well long-term. Historically low interest rates are spurring buyers to make investments. This, in its own turn, has spurred retail property owners to sell investments. After all, they know they will be able to turn a significant profit on the sale. A growing number of buyers are once again shopping at brick-and-mortar retailers, spurring growth possibilities not only for established stores but also new businesses. Now is an ideal time to invest in retail real estate. But buyers should be careful and conduct ample research in order to increase the odds of turning a profit.