With fewer visitors to eat, shop and stay, and unemployment numbers in the double digits, Central Florida retailers are navigating uncharted waters and trying to stay afloat.
As the COVID-19 pandemic began ramping up around the U.S., Central Florida was hit hard by theme park closures, stay-at-home orders and restrictions put on out-of-state visitors. For a region that typically sees more than 76 million visitors each year, a more than two-month shutdown dramatically altered the fabric of the area.
And while restaurants, retail and theme parks have all begun to reopen under Gov. Ron DeSantis’ phased approach to reopening the state, the retail market is still a long way from normal. With fewer visitors to eat, shop and stay, and unemployment numbers in the double digits, Central Florida retailers are navigating uncharted waters and trying to stay afloat.
So, what does this all mean for the coming months? Here are some thoughts:
The areas surrounding theme parks have been hit hard, and face an uncertain future.
The areas surrounding the theme parks were completely dead during the two-month shutdown, as tourism is the main driver of visitors to the area. Florida in general is a tourist destination; however, other cities around the state do not rely as heavily on customer traffic from people visiting destinations like theme parks, which bring more than 1.4 million visitors to the area every week.
While Disney and Universal have since reopened, restaurants and retail in the surrounding area are not back to normal. Some have reopened only to close again because the demand is not there yet. For many of these restaurants, it’s cheaper to remain closed rather than restock their food supply and operate at 50% capacity.
Only time will tell how long retail in this area will see the impacts of COVID-19, and what the long-term effect on these businesses will be.
There will be closures and higher vacancy rates in the market.
In Phase 2 of Gov. DeSantis’ plans to reopen the state, retailers and restaurants shall open if they maintain below 50% capacity indoors. Unfortunately, some retailers filed for bankruptcy protection before the announcement of Phase 2 and will not reopen. Certainly, some of the concepts that filed were already struggling. But nonetheless, it is impossible to operate a business without steady revenue coming in.
As a result, we’ll see an increased amount of retail inventory hitting the market along with higher-than-normal vacancy rates. As for the future of that empty space, it will take a lot of cash for marketing and buildouts to replace tenants that don’t make it. That said, shopping centers are poised to come back faster than standalone retailers because of their access and signage.
Restaurants will continue to struggle until 100% capacity in the dining room is allowed.
While Phase 2 of Gov. DeSantis’ plan is good news for restaurants and retailers, it has still been difficult to turn a profit at this occupancy level. Restaurants’ sales depend solely on volume. The more people through the door, the more money they make, and they often run at extremely tight profit margins.
Rehiring employees and restocking a restaurant is expensive, and at 50% capacity in many cases, it does not make financial sense from a business standpoint to operate at this level. Some restaurants have decided that they can’t be profitable at half-capacity and have decided not to open until more guests are allowed in the door.
E-commerce can’t completely replace in-store experiences.
Online sales in the U.S. soared 49 percent following the massive store closures on March 12. But that phenomenal e-commerce growth is likely to level out in the post-COVID-19 environment. Most shoppers prefer to shop both online and in-store if they can. There is no such thing as a single-channel shopper. In fact, 95% routinely switch channels.
Retailers will need to aggressively adapt in the post-COVID environment.
Just about every retail vertical took a beating during Florida’s two-month shutdown, and rebounding will depend on how well they can adapt in the new environment.
Contactless payment, one-way traffic patterns in the aisles, strict sanitation practices, temperature checks of employees and personal protective equipment are the new norm in the retail industry. And how well businesses implement these practices will impact their bottom line.
And all types of retailers will need to modify their existing business models to succeed. As one example, movie theaters may begin broadcasting sporting events to draw people in who cannot yet go to the arena.
The retail business is facing its biggest challenge in our modern history, and there’s no standard operating procedure to follow that speaks to today’s climate. Retailers are relying on customer loyalty to capture whatever revenue may be available today to survive. But each day that goes on, the challenge expands presenting a larger mountain to overcome.
However, Florida is well positioned and likely more resilient than many other markets across the U.S., as population migration trends tip the scale to Florida. This is providing an optimistic view for both tenants and investors in retail real estate in our markets in the next 12 to 25 months
Jorge Rodriguez, CCIM, is Executive Managing Director of Colliers International. He has been a leader in the Central Florida commercial real estate industry for more than 15 years.