There was certainly a false sense of hope that the pandemic would subside as we turned the new year. All property types have suffered one way or another, but the ones bringing innovation to the table are the ones better suited to tackle 2021.
An abundance of components work to make what we call an ‘ideal’ retail space. But the pandemic has made a couple more apparent, the drive-thru component is more valuable than people thought, and centers with grocery stores will thrive.
“Grocery stores and drugstores have always been in demand, but they are in a particularly high demand now because of their ability to stay open over the last year,” CBRE Senior Vice President Alex Kozakov said.”
Because they haven’t had to close, grocery stores have been able to pay rent through the pandemic while also increasing foot traffic for other retailers in the center. Similarly, retail centers that include tenants with drive thru components, such as a Starbucks or fast-food, are better positioned to succeed in 2021.
“Drive-thrus, which have been able to maintain a high percentage of their business throughout the back-and-forth closures, are also in demand. Starbucks has said that by 2023, 45% of its domestic stores would feature a drive-thru. Several major fast-food chains are betting on their appeal persisting after pandemic lockdowns.”
One big advantage that Starbucks or other quick-order establishments have is that they have the luxury of being able to operate solely out of drive-thru.
“We’re actively and aggressively looking for sites that would be viable for their use, but if it doesn’t have a drive-thru component, we don’t even consider it,” said SharpLine Commercial Partners President Barbara Armendariz, who represents McDonald’s in LA County.
Vacancies are also spurring other retailers to find more desirable locations. 99 Cents Only Stores are trying to capitalize on the especially low lease-rates that high vacancy is causing. According to CBRE, vacancy rates were around 3.8% in Q3 2020. Still though, it won’t mean a free-for-all of retailers flocking to new locations as lease rates vary from neighborhood to neighborhood in Los Angeles.
Now a days there is a new mantra. “The less square footage you have indoors, the better,” Dillavou said.
And this will be crucial for property types such as restaurants that lack indoor space, but can more than generously accommodate people outdoors in their lot. Likewise, fitness centers or gyms that land on properties with significant outdoor space will likely succeed better than others.
“Those who emerge from this later this year have weathered this because they were able to innovate in one way or another,” Dillavou said. “At the end of the day, this will all have strengthened retail.”