The COVID-19 crisis continues to put a strain on the retail real estate market, but some subsectors are thriving in spite — or even because — of it.
Retail in West Michigan was perhaps the most directly impacted real estate sector by COVID-19, according to the second quarter report from Colliers West Michigan. Although 2020 looked to be a promising year at the start, many businesses were forced to temporarily close their doors because of state stay-at-home orders intended to prevent the spread of the virus. Some brick-and-mortar retailers have since permanently closed or are simply in survival mode.
Chris Prins, associate vice president at Colliers West Michigan, said the challenges retailers faced early on with the COVID crisis will continue for the foreseeable future. The retailers that made it through the first half of 2020 have found innovative ways to reach customers, like an enhanced ecommerce presence or expanding delivery or drive-thru services.
Retail in Q2 was defined by a lack of activity due to uncertainties going forward, as businesses began opening back up with social distancing guidelines in place. The vacancy rate overall was 3.16%. Lease rates averaged $13.25 per square foot.
Logan’s Roadhouse, JC Penney, Tuesday Morning, Charley’s Crab, 24 Hour Fitness, AMC Theaters and others announced the closing of stores in West Michigan and across the nation or filed for bankruptcy in Q2.
“It’s obviously affected everyone,” Prins said. “For those essential businesses that are still open, they still have higher operating costs, even if they’re making a little bit more money.”
Similarly, big-box retailers like Walmart and Target continue to do well compared to small businesses but have to contend with higher operating costs.
With restaurants, being forced to operate at limited capacity hinders sales volumes, and with many former service employees choosing to remain home and earn more on unemployment, these businesses struggle find staff, Prins said.
In Q2, food delivery company Shipt looked to hire 2,000 employees in West Michigan, and Amazon hired more than 100,000 workers nationwide.
Even with a high unemployment rate, some restaurant owners are continuing to open new locations, Prins added. The ones who are succeeding are at least holding their ground, and if they have a drive-thru they can hold on to 65-70% of their previous sales.
“My heart goes out to a lot of the downtown restaurants and bars,” Prins said. “Once you took away events at DeVos, or Van Andel, those places were going to lose activity. We used to have strong activity downtown, and now at times it looks like a ghost town.”
The second-quarter market reports from NAI Wisinski West Michigan support the discouraging retail picture Colliers painted. Big-box and chain stores continue to thrive, but restaurants and hotels have not fared as well, with most travel being ground to a halt and most bars and restaurants operating at a reduced capacity or with just takeout or curbside pickup only.
Some specialty retailers, however, are actually faring better than in pre-COVID days. According to NAIWWM, most of its clients dealing in campers/RVs, boats, outdoor recreational equipment and automotives are reporting very strong sales.
Todd Leinberger, retail broker with NAIWWM, also referenced a report from Kiplinger showing sales in June rose above pre-COVID February levels for automotives, building materials, groceries, sporting goods and e-commerce items.
Much of the spike in sales for these particular goods can be attributed to consumers staying home. Additionally, as many gyms across the state are still closed, people are looking to outdoor recreation or buying the equipment to set up a home gym.
“Part of it was people actually saved more money,” Leinberger said. “Consumer savings were higher across the board, so people had more money to spend on bigger ticket items. If we think about it too, goods are a lot easier to purchase than services right now.”
Leinberger predicted restaurants with a smaller footprint and high takeout sales or a drive-thru component are going to fare well moving forward.
According to the NAIWWM retail report, the total vacancy rate in Q2 was 7.6% with 1,285,129 square feet available at an average rental rate of $10.38 pre square foot.
While retailers are living in uncertain times, Prins was optimistic West Michigan will bounce back, but in the meantime, consumers have to be conscious about supporting the local businesses that are hurting the most.
“If you have the financial capability, and if you’re not comfortable sitting at a restaurant, maybe order their food via Grub Hub, or if you are comfortable sitting down, call ahead and make sure their hours haven’t changed,” Prins said.
Leinberger predicted West Michigan is well positioned to succeed, and housing is a good indicator, as demand currently is outpacing supply.
NAIWWM noted some market activity in Q2. The Tutoring Center, a new tutoring facility available for grades K-12 in West Michigan, opened June 1 at 5751 Byron Center Ave., Suite S in Wyoming, and Grand Rapids fashion designer RC Caylan is opening his first retail location this summer at 1876 Breton Road SE.
Colliers expected more cleaning and staffing companies to enter the West Michigan market, and furniture retailers as well as drive-thru restaurants will continue to look for new locations.