Dollar Tree Stores
Real Estate Investing

Discount Stores could be a savior for distressed shopping centers hammered by the COVID-19 pandemic

One of the hallmarks of the coronavirus pandemic has been the desolation of shopping malls and shopping centers across the country, where tenants have had to abandon their spaces as businesses scale back.

The hardships facing commercial real estate are visible across the retail and office landscape, with ongoing uncertainty expected to persist through much of the year.

But one industry has seized an opportunity during the pandemic to reach consumers who have become increasingly cost-conscious.

Discount stores have been expanding aggressively in the United States, placing particular emphasis on shopping centers.

As Millionacres reported this week, big chains including HomeGoods, Dollar General and Five Below all have signaled plans to expand in 2021:

While discount stores typically don’t take up residence in indoor malls, they do have the potential to serve as anchor tenants for shopping centers in the near term due to their size. HomeGoods in particular is often an anchor store, and (parent company) TJX plans to double the number of stores in the next few years. And at a time when so many larger tenants, including department stores, are shutting down, that’s a good thing.

Dollar General, a staple in rural markets, added 1,000 stores across the U.S. this year and aims to open another 1,051 in 2021. Five Below will open 180 stores this year and Dollar Tree intends to open another 600 stores.

Discount stores admittedly are not the flashiest additions to shopping centers, but they do offer a resilient business model that meets a direct consumer need for savings — which, in turn, can stimulate business among other tenants. They are generally not viewed as competitors with other shops.

This trend is unlikely to do much to lift up the sagging landscape for malls, which are under intense financial pressure that predates the pandemic. To solve that commercial real estate dilemma, mall owners will need to turn to non-traditional tenants in those settings, whether they’re medical offices, warehouses or even residential projects.

But commercial real estate investors may want to take a closer look at shopping center REITs over the coming year as a piece to add to their portfolios. They figure to be an important piece of the overall retail recovery.

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