Retailers that appeared left for dead during the height of the pandemic have rebounded as the country and world reopens, and that's created demand for the properties they occupy, Marcus & Millichap CEO Hessam Nadji said.
The gyms, restaurants and entertainment venues that were performing well before being forced to close or greatly scale back their operating hours in the months following the March 2020 start of the pandemic have bounced back more quickly than anticipated, Nadji said in an interview at the ICSC 2022 Las Vegas show. He also serves as president of the Calabasas, California-based brokerage.
"I've been talking to a lot of our clients during the show here about what was going on pre-pandemic. So entertainment, fitness, food, the three key areas of retail that were thriving. And of course, discount retail was doing well before the pandemic, during the pandemic and after the pandemic," Nadji said. "And those segments were so devastated because of the economic shutdown that a lot of pent-up demand has been created as the world is opening back up. The vigor with which consumers are coming back for experiential retail, all the above, you know, fitness, food, entertainment, is pretty great to see."
And this is "bringing a lot of energy back to retail" as reflected by the 22,000-plus people at the ICSC 2022 Las Vegas convention, he said.
Single-tenant properties occupied by fast-food restaurants, drugstores, auto parts stores and other essential retailers have become popular with investors, Nadji said.
"They're doing incredibly well as a safety investment," he said.
In comparison, sales of power centers and neighborhood community centers are relatively healthy but not as strong as retail properties occupied by a single tenant, Nadji said.
The third ring of retail, centered on "the older, tired shopping centers that have to find a new life," also is attracting buyers, though for different reasons, he said.
"It's because of the weak fundamentals of some of the older products that you're seeing a lot of sales occur, because investors are seeing it as a turnaround opportunity or a higher-risk, higher-return type of opportunity," Nadji said.
Savvy developers and investors are putting money into the redevelopment of aging retail centers, he said. "We have plenty of clients, actually, that are investing in those assets as an opportunity to re-imagine and completely reuse the real estate, including a large component of retail," Nadji said.
As for the state of the U.S. retail market, Nadji said it's unexpectedly gaining strength.
"It's surprisingly healthy, it's surprisingly optimistic and it's surprisingly positive," he said. "Regarding the future of retail, I would say that I've been pleasantly surprised by [our clients'] positive attitudes, even though brick-and-mortar retail is still going through a revolution. We have a lot of excess brick-and-mortar product that has to go through reuse or a pretty much a complete re-imagination."