In the latest episode of The REIT Report: NAREIT's Weekly Podcast, senior REIT analyst Alexander Goldfarb of Sandler O’Neill + Partners, L.P. offered his observations on the impact of recent retail store closings on mall and shopping center REITs.
Goldfarb noted that the business of retail constantly evolves. As such, the latest wave of store closings isn’t unique in the industry’s history, he commented.
“The stores that we all grew up with at the mall 20, 30, 40 years ago are completely different from what the stores are today,” he said. “Retail concepts come and go.”
Currently, retail is gravitating towards what Goldfarb termed as “more productive centers” that also offer experiences in addition to shopping. He noted that despite the growth of online shopping, consumers continue to visit malls and shopping centers. Most of the shopping centers that are struggling now were already having problems with vacancies, according to Goldfarb.
Goldfarb pointed out that in the current environment, retail real estate owners will need to spend more capital on property upgrades to stay competitive. “If you can’t get an uptick in rent, but you still need to spend to maintain occupancy, that’s going to compress margins.”
In light of current valuations, Goldfarb said he doesn’t see any consolidation of retail REITs on the immediate horizon.