America's Property Tax Advisor

The Return of Retail Will Bring
Assessment Increases

BY SCOTT BUIE, DALLAS, NOVEMBER 2021

In the wake of the COVID pandemic, major brands are opening brick-and-motor stores at a renewed pace, according to a new analysis from Moody’s Analytics. This comeback will likely lead to increased values for retail property and a higher property tax burden for the tenants.

 

In-Person Shopping is Back

 

New store openings demonstrate “a reasonably strong appetite for in-person shopping,” Moody’s analysts note. “Retailers experience value in opening physical locations because it drives sales and influences consumer tastes and preferences.”

 

“As any pandemic-related restrictions once in place, particularly on retail, have been virtually eliminated in the US, e-commerce as a share of retail has declined and many companies have chosen to open brick-and-mortar retail locations,” the report states. “This is strongly indicative of the fact that despite the ease with which items can be purchased online and delivered to one’s door, consumers still have a penchant for in-store browsing that converts into purchases.”

 

“The excitement and spectacle of in-store shopping coupled with customer engagement provide a total shopping experience,” the report notes. “Stores now more than ever need to provide spaces that encourage customers to interact with the products, whether in the apparel, beauty, technology, or homewares space, ‘try them on,’ and determine if the item is a good fit for them.”

 

Visits on the Rise

 

Retail store visits in October are the best since the start of the pandemic’s retail impact, according to Placer.ai. The success is fairly widespread, with luxury-oriented department stores and those targeting the middle market seeing equally significant improvements in visit levels. This is all the more significant for brands like Macy’s and JCPenney, where store closures create a situation where declines are almost guaranteed.

 

Visits rose across the chains by an average of 10.9% in October, a huge step forward considering September saw a decline of 15.8% compared to August. This is important, as visits are growing into a critical holiday season where players across the department store spectrum will be seeing a unique combination of trends that could drive a highly successful season, Placer.ai reports.

 

“The combination of pent-up demand for the holiday retail season, declining COVID cases, limitations on international travel, and the success of this past Back-to-School season all speak to the potential for a big season,” Placer.ai writes. “Essentially, when pent-up demand meets an excuse to shop – the potential for significant success is present. This is especially true for this sector where malls – the traditional home for most of these brands – are also seeing a boost.”

 

Property Tax Implications

 

Although retail property values have contracted over the past two years, current market trends point to an increase in demand for retail space going forward. This will decrease vacancy levels for existing properties and push rental rates up in the future. These two factors are the driving force for increasing property values.