Retail REITs own and manage retail properties, and rent the retail space to tenants. Most retail REITs choose to specialize in a specific type of retail property. For instance, some retail REITs own shopping malls, while others own single-tenant properties. Yet others may own outlet centers or grocery stores.Retail REITs can encounter varying risk levels due to the fact that there are many different types of retail businesses that may occupy the properties. There are two main factors that affect the performance of retail REITs: the economic sensitivity of the tenants and the implications of e-commerce on the tenants.
The economic cycle affects different kinds of retail businesses in different ways. For example, stores that sell consumer staples products still do okay during recessions since consumers need to buy those products. On the other hand, retail stores that fall into the consumer discretionary category suffer during recessions since consumers can live without such products.
In terms of the consequences of e-commerce, many classic brick and mortar stores have suffered from the increase in online shopping. However, there are three types of retail stores that are well protected against disruptions from e-commerce. These are: stores that sell things people need quickly (such as drug stores), businesses that sell things at a higher discount than can be found online and companies that primarily sell a service (such as an automotive repair shop).
Retail REITs have been among the most negatively impacted sectors of real estate throughout the coronavirus pandemic. The public health crisis has resulted in mandated store closures, physical distancing requirements and tenant bankruptcies. The operations of retail REITs have been heavily disrupted.
The retail REIT sector is relatively large, containing 39 publicly traded REITs. The following three REITs each focus on a different type of retail property: Simon Property Group (NYSE: SPG) features malls, Realty Income Corporation (NYSE: O) owns single-tenant retail properties and Acadia Realty Trust (NYSE: AKR) invests in shopping centers.