The Best CRE Tenants During a Pandemic
During the first two quarters of 2020, CRE tenants missed billions of dollars in lease payments, putting property owners in a bind. As government assistance emerged and the economy started trending in a positive direction over the summer, it became clear that there are specific CRE tenants that are the best to have during a pandemic.
In September, consulting firm Retailsphere surveyed dozens of property managers about the best and worst COVID-19 tenants.
Not surprisingly, grocery stores, which are essential and remained open and thriving during the pandemic, ranked as the “best COVID-19 tenant.”
The retail sector as a whole is experiencing a bifurcated response to the pandemic. Essential businesses like grocery stores, pharmacies, and big-box stores are among the best tenants to have; meanwhile tenants at the other end of the retail spectrum, including restaurants, apparel, and gyms could remain closed for the foreseeable future.
According to research firm Datex Property Solutions, the drug store sector as a whole paid 99.3% of rent owed in August whereas the specialty restaurant sector paid only 58.4% of rent owed in August.
Another sector that has been decimated is the hospitality industry. Along with retail, hospitality experienced sweeping shutdowns and layoffs at the beginning of the COVID-19 crisis, with some of the biggest hospitality brands in the country seeking bailouts from the government.
Bloomberg Financial tracked hospitality and retail delinquency rates through the end of the second quarter which show that hospitality is facing even more challenges than the retail sector.
Regardless of whether your investment property is occupied by a “good” or “bad” COVID-19 tenant, we advise our landlord clients to understand their rights and options during an economic downturn such as this. Retaining occupancy is of utmost importance, even if it means lease modifications or rent deferment is required.
Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.