Economists' Outlook

Housing stats and analysis from NAR's research experts.

The Coronavirus Impact on Retail Commercial Markets as of June 2020

NAR’s July 2020 Commercial Market provides insights into how the commercial real estate market is fairing throughout the coronavirus pandemic. The retail property market is one of the most negatively affected commercial markets by the coronavirus pandemic and measures taken to contain it. The retail market is improving and it should continue to slowly recover over time, provided that the resurgence of coronavirus cases is limited and the measures that are taken to contain a potential resurgence are not to the degree of prior measures.

Retail Sales Transactions Decreased by 83% in May

Retail property sales valued at $2.5 million or over decreased by 83% in May from one year ago, to $1 billion, as transactions plunged from 619 sales deals in May 2019 to 106 in May 2020. The average per square foot has increased 4% since February, to $264 in May and represents an increase of 4% from year-ago levels. Cap rates have remained unchanged for the year thus far at 6.6% and remain essentially unchanged year-over-year.  

Transactions for shops, decreased more than centers, in May. Shop transactions decreased by 48% from the prior month whereas center transactions represent a decrease of 25%. This may be the case as COVID-19 has expedited the transition from making purchases at brick and mortar locations to online shopping.

Bar chart: Retail Sales Dollar Volume

Retail rent payments increase from prior months

COVID-19 and measures taken to contain it, took a drastic toll on retail as it forced reduced hours, significant employee reductions, reduced foot traffic, temporary closures, and permanent retail closures. The loss of revenue made it difficult for many businesses to pay their rent in a timely fashion, if at all.

According to Datex Property Solutions, a real estate business intelligence firm, almost half of retail rent was not paid in April and May 2020. Albeit below March levels, mid-June retail rent collection is making a recovery towards March figures as the economy continues to open with states allowing restaurants, retail shops, and others to reopen, with assorted restrictions and under various phases.

Bar chart: Percent of Retail Rent Paid March Through June 2020

Retail job market is improving

The commercial real estate sector has been dramatically impacted by the coronavirus pandemic, but the improving job market is the silver lining. In May, retail trade employment made a steep incline along with leisure and hospitality, health services, construction, and education. Retail trade employment increased by 368,000 or 2.76% from April figures where April figures represent substantial employment loss of 2.3 million jobs.

Line graph: Retail Trade Employees SA Thousands

Retail trade sales improving as economy reopens

The U.S. economy has reopened in a limited capacity as states are reopening their economies in various phases. Foot traffic patterns of retail sales and food services grew from what looks and hopefully was the bottom in April. According to Coresight Research, 5,007 retail stores, as of June 26, 2020, shuttered. With food services and drinking places operating at reduced capacity according to varying state criteria, the sector has increased from $29 billion in April to $38 billion in May.

Line graph: Food Services and Drinking Places SA Millions