- Alex Pettee, CFA
Retail REITs: Fears Of Retail Apocalypse 2.0
Amid the strongest year of brick-and-mortar retail sales since 2012, Retail REITs appeared to be turning the corner last year. Suddenly, there are fears of another “retail apocalypse."
Store closings have unexpectedly surged in 2019 as the combination of higher minimum wages, tariff-related cost pressures, and heavy discounting have pressured margins at softline and specialty retailers.
More than 7,000 store closings have been announced this year, already topping 2018 total. Research firm Coresight projects up to 12,000 closings by year-end, primarily concentrated in the mall segment.
The bifurcation between top-tier and lower-tier retail REITs continues to widen as retailers focus investments into the highest productivity locations. Grocery-based and hardline retail categories have been the standouts.
While 1Q19 earnings were decent for retail REITs, 2019 is shaping up to be a tough year. Mall REITs are the lone real estate sector sitting out the REIT Rejuvenation.
