RECon 2020 Recap

If this were a parallel universe, I would just be returning from the ICSC RECon conference where I would’ve just spent the last several days with 35,000 of my closest friends. But, understandably, due to the global pandemic ICSC had to cancel this year’s event. So instead the Progressive Real Estate Partners team decided to conduct our own “mini version” of RECon during the past few weeks to maintain connections with our clients and better understand the current state of the retail real estate industry .

With that goal in mind we’ve been social distancing and utilizing our virtual skills to connect with  property owners, regional and corporate tenants, brokerage firm owners, city officials, our Retail Brokers Network colleagues, and lenders to assess the current situation.   The following are our team’s takeaways:

Certain Capable Tenants Are Waiting: We’ve heard from both regional and national retailers that are capable of expanding that they are taking a “wait and see” attitude to see what opportunities may arise out of the downturn. Once they have a better sense of what options may became available, they will likely start pulling the trigger again.

2nd Generation Leasing Activity Has Slowed: As you might expect, most brokerages are reporting that their leasing activity has slowed significantly.  At Progressive Real Estate Partners our sign calls have dropped by over 75% in the last few weeks and many of the calls we are receiving are “just looking”. Inquiries from Costar, Crexi, Loopnet and our email marketing are also down. However, once retail has “re-opened” and the market has had an opportunity to stabilize we do expect leasing activity will increase.  And, unfortunately part of that leasing activity will probably be as a result of some stores not making it to the other side of this crisis thereby creating new vacancy that needs to be leased.

Late 2020/2021 Corporate Deals Are on Track: Many deals that involve a longer gestation period are still moving forward.  Some of the corporate transactions that are still on track with late 2020/2021 openings include Grocery Outlet, Big Lots, Sonic Burger, Quick N Clean, T-Mobile, Fast 5 Express, Raising Cane’s, and Western Dental.  Most of these tenants represent the categories that we’ve seen continue to operate effectively during the pandemic.

What’s Credit?: When companies with market capitalizations in the billions that are well positioned to weather the current storm view the pandemic as an opportunity to cut their occupancy costs by trying to re-trade their leases, then this substantially diminishes the concept of a credit tenant. Needless to say, just about everyone views this as unethical. This action by tenants such as Starbucks, Staples, Marshalls, Petco, and many others will certainly strain their long-term relationships with developers and landlords. It will also probably negatively affect the demand for single tenant investments as investors will be more careful about putting too many of their eggs in one basket.

Multi-Tenant Retail Investment Sales Have Diminished: With the lack of clarity in evaluating rent rolls, it is challenging for buyers and lenders to wrap their minds around value. Furthermore, it is difficult for many investors who are trying to keep themselves personally safe to go view properties. Also, inspections and appraisals are difficult because so many businesses are still closed. Many expect that this market will bounce back in a few months as the market dictates which tenants are viable and rental payments get back on track.

Cities Are Challenged: Cities are really nervous about the decreased sales tax revenue coming into their coffers. On one hand, we should expect more cooperation from cities, especially if a new business will generate tax revenue. On the other hand, there will likely be less staff to process use applications and construction drawings so entitlements may take longer the further into the recovery we go.

California’s Proposed Split Roll Tax Is a Big Concern:  For those of us in California November’s ballot will have at least one if not two propositions that if passed would split commercial properties from proposition 13 protections and result in substantially higher property taxes for the shopping center industry. Initially we thought the pandemic would kill this bill as many would have recognized that California businesses couldn’t handle any additional burden. But now it appears that the state’s budget is going to be so impacted by the pandemic and especially the schools, that the pandemic may actually help to pass this legislation. It is going to be hard for many to fight the teacher’s union after millions of Californians have spent the past few months trying to be teachers themselves. It is going to be one heck of a fight.

The Market is Definitely NOT Dead:  Not only are we hearing from our colleagues that leasing and investment sales activity is still happening but we’re experiencing the same too.  Since the pandemic began, we have closed 6 sale transactions valued at over $20M. Strangely, two of them involved speculative land sales. We have also completed a handful of lease transactions and we have more in process. While this isn’t the level of activity we are accustomed to our brokers are working hard and being more creative including using new technology and various marketing techniques to increase activity.

Overall our team remains quite optimistic as we head towards the 2nd half of 2020.  We have been using these past two months to improve many of our systems so when demand picks-up, we will be even better positioned to serve our clients.

And, we’ve already started the countdown toward ICSC RECon 2021.  I feel confident that it will likely be one of the best RECon conventions ever as everyone reconnects in real life and we can all reflect on how we survived this unprecedented time in the retail world.

Stay safe and healthy all and, as always, I welcome your feedback at

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