Predictions of Demise and Distress Largely Exaggerated in CRE’s Retail & Hotels Sectors;
New LightBox Sentiment Report Finds Greater Optimism Than Distress, Though Caution Remains
CARLSBAD, CA (July 6, 2021)—As the summer shopping and travel season gets into full swing, the commercial real estate industry is closely watching the flow of revenue into the hard hit retail and hospitality sectors. According to a Q2 2021 Investor Sentiment Report from LightBox, investors and their advisors are seeing promising indicators. This is translating to aggressive pricing for top tier assets in both sectors and predictions of a spike in investment in the second half of 2021 and into 2022.
There remains a lingering sense of caution, however, and a look toward Labor Day when retail and lodging receipts will be tabulated; back-to-work and school plans will be underway; and there likely will be greater clarity concerning vaccination rates and variants. Aggregated, this is keeping significant capital on the sidelines and moving many investors into top tier, low risk assets.
The retail sector is navigating the challenges of ecommerce growth and physical store declines; it also is evaluating new concepts and experiential strategies, some born out of pandemic survival plans. The hotel sector is embracing the surge from almost unparalleled “emerging from the pandemic” Spring and Summer travel activity. Yet industry experts are more than anxiously awaiting the return of the all-important business and convention travelers. And, there is a general consensus that a broader recovery will require an expansion beyond the ultra-safe assets into the wider pool of middle and lower tiered properties.
“The commercial real estate industry is skillfully navigating a complex set of challenges while at the same time seeing many positive signs of recovery and renewal at mid-year 2021,” said Tina Lichens, Senior Vice President, Broker Operations, LightBox. “The retail and hospitality sectors are poised for continued growth and transformation yet are also the most vulnerable to continued upsets as the market stabilizes and investors make decisions about which asset classes can deliver strong long-term returns.”
Among the key findings of the Q2 2021 Retail and Hotel Investor Sentiment Report are:
- Omnichannel retail will drive retail growth — as consumers drive a need for quick and efficient ways to shop online, in-store, or through technology.
- Bricks and mortar retail is expected to grow in 2021 — given consumers’ desire to return to in-store shopping and socialization. Some predict a tipping point where ecommerce expansion slows and in-store retail expands.
- The retail investor profile has shifted. Private investors, high net worth individuals and non- traded REITs are the primary deal makers, with institutional capital waiting on the sidelines.
- Grocery anchored and lifestyle centers remain at the top of the list for investors. Those with good population density, high-income levels and some evidence of supply constraint are particularly in demand and are commanding lower cap rates. Strong shopping center assets are being bid up very aggressively, with pricing that is similar to pre-pandemic levels.
- Resort and leisure travel is back but business and convention travel is key to a strong recovery.
- All eyes are on Labor Day as a critical timeframe for understanding which hotel properties and investors can be called survivors.
- Sales are expected to spike significantly in the second half of 2021, potentially reaching pre- pandemic levels in 2022 and 2023. Many buyers will focus first on properties that can benefit from leisure travel, particularly those in driving distance of large population pools.
- Hotel distress statistics are potentially misleading. More hotels than any other property type are in the distress pipeline, through a transfer to special servicers. Yet looking ahead, the stat does not evoke widespread concern, as many believe that lenders have little desire to take over low performing assets.
A Look at Distressed Assets
Distress is occurring in hotel and retail properties, however it is not at the level or intensity that originally was expected. The financial stimulus from Congress, along with state and local support, have helped to dramatically curtail the wave of distressed properties coming into the system. This government financial support, along with the surge in vaccine distribution have softened the impact from a tsunami of distressed properties to a watch list, with varying levels of hardship. Still, experts predict there will be more distressed properties coming available for sale, or a continuation of note sales from the banks, later in 2021.
“Investors are trying to predict how consumer spending, business and leisure travel and myriad other factors will impact investor confidence — and, ultimately, capital deployment — in the retail and hotel sectors over the next 12 to 18 months,” adds Steve Shanahan, General Manager, Broker Solutions, LightBox. “Many have circled Labor Day on the calendar as a red letter day for a clearer picture.”
The consensus among real estate professionals, in both the retail and hotel sectors, is that while the pandemic has created challenges on many different levels, the silver lining, if there can be one, is that the markets know this has been a medical/healthcare issue and not a financial market debacle like the Great Financial Crisis in 2008.
The report was based on a survey and interviews with commercial real estate investors, brokers, and landlords across the U.S.
LightBox is a leading provider of CRE data and work ow solutions for marketing, prospecting, due diligence, risk management, and location intelligence that enable decision making for 50,000 CRE brokers, 1,100 banks and lenders, 2,000 appraisal firms, and 5,000 environmental consulting and engineering rms. By combining proven brands with innovative technology and data capabilities, the company is creating new solutions to facilitate transparency, efficiency and insight for real estate.
Through RCM, LightBox offers a global marketplace for buying and selling CRE and increases the speed, exposure, and security of CRE sales through a streamlined online platform. Solutions include integrated property marketing, transaction management, and business intelligence tools to unify broker- level and firm-level data and work flows. The company has executed over 72,000 assignments with total consideration in excess of $2.4 trillion. Approximately 50% of all U.S. commercial assets sold, over $10 million, are brought to market using the company’s online marketplace annually. LightBox was established in 2018 and backed by Silver Lake and Battery Ventures.
Follow LightBox at www. lightboxre.com, on Twitter at @LightBoxRE, or on LinkedIn.