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Will Retail REITs Continue to Rebound in the Holiday Season?

The rising prices of commodities and the consequent impact on consumers’ spending might have fueled fears among retailers and their landlords — retail REITs — for the upcoming holiday season. However, the favorable job-and-wage growth environment, which supports consumer confidence, and stimulus savings from last year are raising hopes. Predictions also suggest that retail sales will pick up during the holiday season.

Per Mastercard SpendingPulse, U.S. retail sales, excluding automotive, are anticipated to surge 7.1% from a year earlier during the traditional holiday period that runs from Nov 1-Dec 24. While in-store retail sales are projected to increase 7.9%, e-commerce is expected to rise 4.2%.

Obviously, this is a positive for retail REITs like Realty Income Corporation O, Simon Property Group SPG, Kimco Realty Corporation KIM and Federal Realty Investment Trust FRT.

The retail real estate industry is poised to benefit from the pent-up consumer demand as consumers look for an exclusive in-store shopping experience, following the pandemic downtime. Amid these, retailers’ focus has now shifted from the closing of stores to the revival of their growth plans, resulting in more demand for physical store spaces and paving the way for the retail REITs to experience gain in leasing activity, pricing power and flourish.

Retailers are also focusing on investments in their stores because apart from serving as showrooms, physical stores offer a convenient location for pick-up or exchange of goods, helping retailers counter the increasing costs associated with last-mile delivery.

Furthermore, amid limited availability and with the rapid formation of new businesses in the retail sector, lease signings, rent and occupancies in retail real estates are likely to get a boost. This will support the growth of retail REITs like Realty Income, Simon Property, Kimco Realty, Federal Realty and others.

Moreover, omni-channel is the focal point for retailers. Physical stores will be a vital sales channel over the long run because though there is convenience in online shopping, it cannot replace the benefits and satisfaction of visiting a brick-and-mortar store. This is quite evident from the recent foot traffic at retail destinations.

Digitally native brands are likely to keep boosting their physical presence in the days to come as part of the omni-channel strategy as the opening of stores helps them improve their connection with customers and drive expansion.

In fact, for retailers, the focus now is not only on boosting their online presence but also on maintaining brick-and-mortar stores in the best locations, which in turn is raising hopes for retail REITs that focus on such locations. Also, with the waning impact of the pandemic, entertainment and dining concepts are seeing a revival, boosting retail REIT’s growth scopes.

Nevertheless, inflationary pressure, a slowdown in the economy and the depletion of savings might temper consumers’ willingness to spend to some extent. With office usage affected and international tourism yet to regain lost ground, certain submarkets also remain choppy.

Moreover, given the convenience of online shopping, it is likely to remain a popular choice among consumers. This is likely to affect the market share for brick-and-mortar stores and hurt demand for retail REIT’s properties.

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Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
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Realty Income Corporation (O) : Free Stock Analysis Report
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