Hospitality and retail have taken the brunt of the economic impact from the coronavirus-spawned business disruption, and this has clearly weighed on the outlook for property performance and investment strategies. Almost half of retail investor respondents (47 percent) anticipate that retail property values will decline over the next 12 months by an average of -6.8 percent. Overall, half of respondents who already own that property type said it is a better time to hold compared to 34 who believe it is better to sell and 16 percent buy.
“At a macro level, many investors see a grim outlook for retail, but there are several segments within the retail category that are performing well,” notes Daniel Taub, senior vice president, national director of the Retail and Net Leased Properties divisions of Marcus & Millichap. Shopping centers that have fitness centers, movie theaters and a lot of sit-down restaurants are struggling more than grocery-anchored centers that have a drug store, dollar store or other essential retailers. In addition, some single tenant net lease assets are still doing quite well, he adds. Although the retail sector saw negative absorption of 9.7 million square feet in second quarter, the sector is still reporting relatively low vacancy, with just 5.2 percent available for lease, according to Marcus & Millichap.
Despite the fact that hotels have been the most negatively affected sector with occupancies and cash flows that virtually dried up at the height of health crisis shutdowns, nearly one-third of investors (27 percent) think it is still a good time to buy hotels. Forty eight percent believe it is a better time to hold, while 25 percent said it is more favorable to sell. “In general, hotels face the highest level of distress, and there are investors out there who view this as a buying opportunity,” says Skyler G. Cooper, national director of Marcus & Millichap’s Hospitality division. These prospective buyers tend to have strong management teams that can operate efficiently during the downturn, and they may be well positioned to take advantage of opportunities that arise, he says.
Although hotel occupancies and revenue per available room have improved from the extreme lows experienced in the first three months of the pandemic, fundamentals remain well below the record-high pre-crisis levels. According to STR, metrics from the last week in September show occupancies averaging 47.9 percent. That is down 20.1 percentage points on a year-over-year basis, with the average daily rate (ADR) down 26.3 percent to $95.63 delivering a 48.1 percent decline in the revenue per available room (RevPAR). Hotel investors are bracing for the pain to continue through the remainder of the year. Fifty seven percent believe that property values will drop versus 43 percent who anticipate stable or even improving values. Overall, the average decrease expected is -7.7 percent.