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The Evolving Retail Landscape: Top 6 Retail REIT Picks for 2022

Image: Galeanu Mihai/iStock via Getty Images If there's one thing that's become clear in the wake of the COVID-19 pandemic, it's that the retail sector is far from dead. In fact, it's experiencing a remarkable...

Businessman draws increase arrow graph corporate future growth year 2021 to 2022. Development to success and motivation. Image: Galeanu Mihai/iStock via Getty Images

If there's one thing that's become clear in the wake of the COVID-19 pandemic, it's that the retail sector is far from dead. In fact, it's experiencing a remarkable resurgence, with retail sales surpassing pre-pandemic levels and a strong recovery in various industries. As we look ahead to 2022, there are some compelling opportunities in the retail real estate investment trust (REIT) market. In this article, we'll explore the evolving retail landscape and highlight the top six retail REIT picks for the coming year.

A Broad-Based Recovery in Retail Spending

The COVID-19 recession may have been short-lived for the retail sector, as sales quickly rebounded and reached new heights. Total retail and food service spending in 2021 soared to $7.4 trillion, a 19.3% increase compared to the previous year. This surge can be attributed to the return of shoppers to physical stores and diners to restaurants.

US retail sales surpass pre-pandemic levels Image: US retail sales surpass pre-pandemic levels (YCharts)

The upward trend in retail sales is expected to continue in 2022, with the National Retail Foundation projecting a 6-8% increase. This growth rate is well above the 10-year pre-pandemic average of 3.7% annually. It's worth noting that this recovery isn't limited to e-commerce giants like Amazon and Walmart. The hardest-hit industries during the pandemic, such as apparel, gas stations, and food & beverage services, have made significant gains.

The Resilience of Brick-and-Mortar Retail

Contrary to popular belief, brick-and-mortar retail is far from obsolete. In fact, store openings in 2021 outnumbered store closures, marking a significant turning point. U.S. retailers announced the opening of 8,100 stores last year, compared to only 3,950 store closures. This shift is a strong indication of the industry's resilience.

Retail sales recover rapidly Image: Retail sales recover rapidly (US Census Bureau)

Leasing activity and net absorption have also experienced a resurgence, reaching their highest levels in years. While the retail sector may not be back to its previous glory, it's certainly a step in the right direction. The success of open-air shopping centers, which have seen significant net absorption, indicates a shift in consumer preferences.

The Changing Face of Retail

The rise of e-commerce has undoubtedly transformed the retail landscape, necessitating a shift in strategy for brick-and-mortar retailers. To compete effectively, retailers are focusing on low-price point goods, service-based and experiential businesses, and integrated omnichannel platforms. Additionally, their choice of locations has changed, with a clear preference for high-end, Class A "destination" malls and open-air and freestanding formats.

Shopping center absorption is hugely positive Image: Shopping center absorption is hugely positive (CoStar)

The performance of various types of retail properties also varies. Class A malls continue to attract foot traffic and thrive, while low-end malls struggle. By understanding these dynamics, investors can make informed decisions about which retail REITs to consider for their portfolios.

The Top 6 Retail REIT Picks for 2022

As you plan your investment strategy for the coming year, these six retail REITs stand out as top picks:

  1. Federal Realty Investment Trust (FRT): This REIT boasts a high-end shopping center and mixed-use center portfolio, which rebounded strongly in 2021. With a track record of 53 years of dividend growth and a diversified portfolio, FRT is well-positioned for the future.

FRT shopping center Image: FRT shopping center (Federal Investment Realty Trust)

  1. Regency Centers (REG): With a primarily grocery-anchored portfolio, REG weathered the storm of the pandemic and experienced a significant rebound in 2021. The REIT's strong operational fundamentals and stable dividend make it an attractive choice.

REG shopping center Image: REG shopping center (Regency Centers)

  1. Brixmor Property Group (BRX): BRX is a value-oriented REIT with a focus on grocery-anchored centers. With a successful leasing strategy and impressive rent growth, it offers investors both income and growth potential.

BRX shopping center Image: BRX shopping center (Brixmor Property Group)

  1. Whitestone REIT (WSR): WSR's grocery-heavy, Sunbelt-focused portfolio has been performing exceptionally well. With a refreshed management team and a commitment to shareholder interests, this REIT is poised for success in 2022.

WSR shopping center Image: WSR shopping center (Whitestone REIT)

  1. Simon Property Group (SPG): As one of the largest mall operators globally, SPG has a diverse portfolio of high-end properties. With a strong management team and plenty of redevelopment opportunities, this REIT is a solid long-term investment.

SPG mall Image: SPG mall (Simon Property Group)

  1. Macerich Co. (MAC): Despite facing some challenges, MAC remains a strong contender in the retail REIT market. The REIT's operational fundamentals are solid, and with its share price at a discount to net asset value (NAV), it presents an attractive opportunity for investors.

With these six retail REIT picks, investors can gain exposure to the evolving retail landscape and position their portfolios for success in 2022. Each REIT offers unique opportunities for income, growth, and potential capital appreciation.

In conclusion, while the retail sector has undergone significant changes in recent years, opportunities abound for savvy investors. By understanding the evolving retail landscape and considering the top retail REIT picks for 2022, investors can make informed decisions and capitalize on the resurgence of this dynamic industry.

Disclaimer: This article is for informational purposes only and should not be taken as financial advice. Do your research and consult with a qualified investment advisor before making any investment decisions.