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The State of Retail - When the Restaurants Close

Get ready for a tough winter. News of the misfortunes of retail and restaurants is in great supply these days, but the worst is to come. Yes, its bad now: by mid August USA Today said nearly 75,000 restaurants had closed nationwide. The list of retailers closing many or all stores reads like a corporate directory: JCPenney, Neiman Marcus, Lord & Taylor, Bed Bath & Beyond, Macy's, Jos. A Bank, GNC, Pier 1, Gap, the list goes on. At least 50 restaurants in DC have closed permanently, many more have closed "temporarily", the Hilton Brothers alone will close 7 large bars in DC next month. Performance theaters remain shut down. If you had made such predictions in 2019 you would have been shrugged off as an apocalyptic lunatic, but the view from the rear mirror as not as bad as that looking forward.


As for restaurants, the problem they face is a two-fold: a government-mandated reduction of capacity that may last into the winter, and a debt crisis that no one has a clue how to resolve. The first will resolve itself over time, when restrictions are eased, then lifted, though no one knows when, as DC and Montgomery County remain stubbornly in Stage 2 and the virus continues to defy predictions. Meanwhile, restaurants lose money and bars have no reason to open. But aren't restaurants getting by on take-out? No, food is a low margin business. Restaurants survive on high-margin alcohol sales, on bars 3 people deep, on tables as close as possible without being awkward, on catered parties and business events, boozy brunches, business lunches and expense accounts. All gone.


And yet restaurants and retailers continue to operate, which is a good sign, right? That brings us to the debt crisis. Most restaurants stopped paying full rent in April. Some have rent abatement from landlords, some have made unlikely promises ("deferments") to pay back rent later. Most are in limbo with their landlord, unable to reach a settlement. In all cases, the landlord cannot evict because commercial eviction bans remain in place in Maryland and DC. The downtown DC BID said only 5% of office workers downtown still go to the office, and tourism is gone, so who's shopping and eating there? In August, 87% of restaurants in New York City did not pay full rent, 34% paid none, which is to say they have gone deep in debt to the landlord. Cancel their debt? Maybe, but landlords have lenders and investors to pay, and some landlords are small businesses too. Many are irrationally demanding 100% of rent be repaid. Retailers limp on by not paying bills, but a reckoning is coming. When eviction moratoria are lifted, the true nature of this debt will be more apparent. Many retailers are too strapped to even hire legal counsel now. Some predict the restaurant casualty rate will be two-thirds in New York City, some say 85% of all independents will close permanently.


Winter is coming, sidewalk seating and outdoor fitness classes become more and more difficult. That means less dining options, less retail, but something more. In January, Washington DC's employment rose above 800,000, 62,000 of those in the food industry. By June, the overall number fell to 740,000 employed, permanent restaurant losses are for now uncountable. DC could lose another 600 or 700 restaurants by those predictions, and untold retailers, jobs and services, while landlords sit on empty office and retail space. Cities will recover, in time, but not before businesses are decimated. Government could step in to blunt this, but has failed to. That's a subject I'll save for next time.

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Copyright 2019 City Grid Real Estate, Washington , DC

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