The Covid Rules

The Ides of March was celebrated in ancient Rome on March 15^th each year, as the deadline for settling debts.  As the commercial real estate industry continues to emerge from the punishing Covid pandemic, it too has genuinely begun to settle in this March of 2022.  We’ve learned a lot about how consumers and markets have adjusted to the post-Covid paradigm.

Below we share the Top 10 Covid Rules that have reshaped the shopping center industry.

1. Essential Retail eats Experiential Retail for lunch. In the pre Covid era, Experiential Uses like Fitness, Theatres and Entertainment concepts like Dave & Busters were peddled as a clever backfill strategy for a mounting inventory of vacated big boxes that failed due to e-commerce impacts.  Many tried to rationalize these uses as having the advantage of being internet-resistant, since you had to leave the house to enjoy your workout or movie & popcorn.  During Covid, brands like Peloton and Netflix illustrated how those services were in fact deliverable at home, and virtually all Experiential Retailers had to fight for survival, while the grocers, pharmacies, banks and drive thrus soared.
2. The Money will be Spent…Covid just re-organized where. All those home-office set ups, backyard barbeques, home gyms and domestic vacations at US resorts perfectly illustrated how consumers are going to consume, regardless of hurdles arranged by governmental agencies around where they could spend it.
3. Drive Thru Everything. Groceries, Pharmacies, Coffee, Lunch, Dinner, Banking, Urgent Care, Covid exams.  What next?  Covid taught us how the car is the new customer and retail and dining brands, as well as many other non-retail organizations tailored their services to the consumer’s vehicle.
4. Online Partners are here to stay. Grub Hub and Door Dash, Uber and Lyft, Yelp and Facebook, and many other platforms that help to integrate retailers and consumers became entrenched and indispensable during Covid.  They are all here to stay.
5. The rise of E-commerce will keep rising. But bricks & mortar retail isn’t going away.  The 2020’s will be a decade of further integration between consumers and retailers with mobile devices, creating growth opportunities for both home delivery and in-store and restaurant visits.
6. Chicken is the new Beef. Exhibit A:  Chick Fil A.  Exhibit B: Raising Cane’s.  Exhibit C:  Slim Chickens.
7. Just Walk Out technology will be the new normal faster than you think. Amazon is raising the bar…for everyone.  Consumers will adapt to JWO technology in the same ways that they did to grocery store adaptations like bar codes and self-checkout.  A consumer would not think of buying a television without a remote or a car without a keyless fob. JWO is a game changer in convenience for the consumer that will leave late adapters scrambling to play catch up.
8. De-risking deals will be the next battlefront between Landlords and Tenants. Spiking inflation, soaring construction costs, supply-chain delays and geo-political uncertainty have all conspired to make the science of projecting development costs guesswork.  Both Landlords and Tenants will seek to push construction cost risk to the other parties’ side of the ledger on new builds.  Landlords will seek ground leases in which tenants self-develop, while credit tenants will seek to make Landlords deliver turn-key stores.
9. PPP Worked. Rents were paid. Mortgages were paid. Salaries were paid. Taxes were paid.
10. Covid was the first great Darwinian moment of the 21^st Century in the US Economy. “Business conditions change, and survivors adapt” – Sam Walton.  Generational events like the Covid pandemic embody change, adaptation and survival.  They also act as the catalyst for a new generation of winners in retail.