Examining the DC Retail Landscape

Commercial Observer invited retail experts in the Washington, D.C., region to discuss the retail landscape of the past year and what to expect in 2022.

How would you characterize the retail environment in 2021 overall?

Mathew Adler, managing director at Newmark (NMRK): Coming out of 2020, I don’t believe anyone saw the turnaround coming that ended up taking place in retail. Overall, leasing activity was robust, giving owners the confidence to begin playing offense again. Capital markets activity also bounced back due to tenants getting back on their feet. Quality vacancies saw an abundance of activity, and the cost of capital remained highly inexpensive.

Barry Brown, senior managing director at JLL (JLL): The retail investment market in 2021 has progressed and could be described as frothy for certain segments such as necessity-based assets with a grocery component. Well-positioned power [250,000- to 750,000-square-foot outdoor shopping malls] and lifestyle centers are also gaining traction, and cap rates are showing signs of compressing.

Philippe Lanier, principal at EastBanc: As the year closes, Washington D.C., is seeing a tremendous rebound in urban retail here in Georgetown. We have filled nearly all our vacancies and have signed leases with some really exciting national brands including Everlane, Faherty, Aerie, Avocado Mattress, GlossLab and gorjana, with a few more tenants to be announced in the next 30 days. Significantly, the fall sales figures show amongst the highest monthly sales we have seen in this market in over six years.

Amy Rice, senior vice president of retail leasing at JBG Smith (JBGS): A growing number of retailers have shown a willingness and ability to adapt to the changing landscape and pivot to meet their consumers’ evolving needs. These retailers have done more than survive the pandemic. They are actually exploring new opportunities and expanding their businesses.  

What impact did the pandemic have?  

Brown: The pandemic and shutdown expedited the cleansing of the market for retailers that were struggling prior to and were on the verge of bankruptcy or closing stores. There have only been 16 major bankruptcies in 2021 versus 70 in 2020. Store closures have returned to a normal level of 9,746 versus a record level of 41,200 in 2020.  

Lanier: The pandemic was limiting on foot traffic early in the year. [We were] seeing greater strength in our collegiate and postgraduate generational shoppers early on, followed by the mainstay customer towards the end of the summer. The concern around the delta variant of COVID had a very short-lived impact on our consumer psychology, but by year-end, we saw a robust and even more diverse customer daily in our market than I can remember over my career. From a broad perspective, Georgetown added approximately 3,400 linear feet of additional sidewalk since the beginning of the pandemic which I believe helped, providing more space for visitors to comfortably explore and shop.

What initiatives worked to get customers back?

Brown: Initiatives by shopping center owners included opening up venues for more outdoor activity, increased sanitation efforts and social distancing, along with other methods, all of which helped the consumer feel safer during their shopping experiences.  There was a tremendous amount of pent-up demand and perceived “revenge spending,” as consumers in parts of the country came out of their lockdowns.

Adler: For food and beverage, having local and state municipalities ease regulations for things like expanding opportunities for outdoor seating and allowing for carryout to include selling alcohol were simple to do. They had a substantial impact on retailers’ volume and profitability. In general, retailers embrace the importance of utilizing their digital platform as a key tool to augment sales and improve the consumer experience. Whether buying online and picking up in-store, curbside pickup, or even delivery, a digital platform is key to making that experience efficient for the consumer. 

Rice: The proliferation of streeteries has been an unqualified success. In addition to helping restaurants survive, they have proven to be a fantastic way to safely reintroduce people to dining and the joys of gathering in an open-air format. These structures and spaces, which were a major hit with our retailers along Half Street in D.C.’s Ballpark neighborhood, provided an alternate way for brands to interact with customers in person again.

What is your projection about the year ahead for the sector?

Adler: At the moment, the wind is at our backs. The fundamentals remain solid, and confidence in the retail sector appears to continue in the right direction. Keep in mind the timeline for activity — whether lease or sale — takes several months and, on occasion, more than a year to be realized. It’s not uncommon for a lease to be signed more than a year before the first rent check is paid. A lot of the current activity will be noticed next year. Provided inflation remains under control, sales and leasing activity will likely continue at the same pace into the first half of the year at a minimum. As the labor participation rate and work-from-home trends normalize, there is a strong possibility 2022 will be even better than 2021.

Lanier: The future of Georgetown retail is looking bright in 2022. Current retail sales are up over 10 percent compared to 2019 and brands including Aritzia, Polo, Relish and Reformation saw great Black Friday foot traffic. While some of our retailers have seen sales shift online, I anticipate that with increased foot traffic, high vaccination rates in D.C., and new retailers entering the market, Georgetown will continue to see success in the new year. 

Brown: We anticipate continued strong consumer demand going into 2022. Depending on the control of any new COVID variants, we anticipate the supply chain issues in retail to subside and merchandising efforts to ease, providing consumers with better shopping selections. The investor market is poised to continue to pursue retail investment offering compelling yields compared to other asset classes.

Keith Loria can be reached at Kloria@commercialobserver.com.