KBWY - A Terrible Time To Own Retail

• Shopping center REITs roared higher in 2021. The impressive rally has made prices less attractive compared to other REITs.
• Few analysts are willing to take a simple bearish view on a subsector. It isn’t popular with readers. It goes against their incentives.
• While retail isn’t dead, it is becoming less relevant. Ordering online with in-person pickup helps, but there are other challenges coming.
• Valuations don’t leave much margin for safety. Pressure from rising wages has the potential to severely impact traditional retail tenants, which could weaken leasing spreads over the next several years.
• Rising wages are driving a material shift in our expectations for inflation. Beware of jumping to conclusions about Treasuries or REIT values though.

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