CREJ

Page 6 — Retail Properties Quarterly — November 2021 www.crej.com Market Update A fter years of “retail apoca- lypse” headlines, the retail market has started to show signs of recovery. The delin- quency rate for retail proper- ties securitized in commercial mort- gage-backed securities fell to 9.5% in September from 10.3% the month prior and was down from nearly 15% in September 2020. Store openings are outpacing store closures, with the lowest projected square feet of retail closures in 10 years, accord- ing to Colliers’ fall retail report. The Denver retail market had 282,000 square feet of net absorption in the third quarter, according to CBRE’s third-quarter Denver retail report. However, within the retail space, clear winners and losers are emerg- ing as underperforming retail con- tinues to falter. In our September “Update on Malls” report, we noted that the recent appraised valua- tions for distressed malls all came in lower than in previous appraisals. Retail investment has shifted to new property types and locations, and retail owners and retail- ers alike must con- tinue to adapt to attract consumers. Below we discuss some securitization trends we’re seeing in CMBS and what retail seems to be working. n CMBS issu- ance and retail exposure are up. As the real estate market recovers, the CMBS market is picking up. So far this year, $95.5 billion of U.S. private label CMBS has been issued, a steep increase from $58.86 billion in 2020 and on pace to surpass 2019’s $97.95 billion issu- ance. After several years of trending downward, retail as a percentage of CMBS has picked up in 2021, repre- senting 19.4% of the property type exposure in conduit transactions, from 13.4% in 2020. n Adapting retailers. After years of being inundated with store closure announcements and retail bank- ruptcy filings, 2021 has been quiet. One reason retail closures are down is that the large retailers that were faltering closed most of their stores before and during the height of the pandemic. Belk has been the only major department store filing in 2021 and announced no store clo- sures. For comparison, J.C. Penney, Neiman Marcus, SteinMart and Lord & Taylor all filed for bankruptcy in 2020, and all con- sequently reduced their footprints, with SteinMart and Lord & Taylor liquidating their remaining stores. Sears, which hasn’t released a store closure list since 2019, only has 32 stores left. Another reason for 2021’s dearth of store closures is that tenants have gotten more creative at using their brick-and-mortar spaces. This includes department stores, which have needed to reinvent themselves to survive. Macy’s converted two of its locations to fulfillment centers during the pandemic, including at Southwest Plaza in Littleton. The retailer also announced a collabo- ration with Toys R Us to open 400 shop-in-shop stores, a growing trend where large retailers lease a portion of their space to smaller- format stores. Dick’s Sporting Goods launched five new concept stores this year, with experiential features that include a putting green and rock-climbing wall, according to a July article in Retail Dive. The tenant mix also has shifted. In addition to retailers, shopping center owners must be agile and adapt to changing consumer prefer- ences to stay relevant, which means attracting the right tenants. In 2016, traditional department stores domi- nated the CMBS retail landscape. There since has been a shift to big- box discount stores and drugstores, with Target, Walmart and Walgreens as the largest tenants backing secu- ritized loans in 2021. Grocery stores also have made their way into the mix, with Publix, Giant Food and Kroger among the 20 largest tenants anchoring retail properties in 2021 CMBS deals. According to JLL’s United States Retail Outlook Q2 2021, neighbor- hood centers and stand-alone retail properties have driven 90% of the net absorption so far this year. This is reflected in the lending market, as anchored retail and single-tenant retail are the two most prevalent retail subtypes across CMBS deals this year. n Location is king: Shift to the sub- urbs and smaller markets. Gateway What’s working for retail: 2021 CMBS loan trends Sarah Helwig Assistant vice president, Morningstar Credit Information & Analytics MCIA Commercial mortgage-backed securities conduit exposure to retail properties by year Please see Helwig, Page 23 2021 conduit commerical mortgage-backed securities retail property subtype breakdown The art of spacial intelligence. A Commercial Real Estate Agency based in Colorado. Over 35 years representing retailers nationwide in their expansion strategies and assisting property owners in maximizing project visibility and profitability. By offering our clients access to unparalleled insight, information and industry networking, we can assist you with your next real estate endeavor. 303.804.5656 | zallcompany.com