As Rustom Khouri, CEO of Westlake-based real estate development company Carnegie Management & Development Corp., discusses conditions among the firm’s shopping centers in 17 states, he sees the challenge as “weathering the storm.”

In Northeast Ohio, he owns three centers with substantial movie theaters that are not paying rent amid the pandemic and feels the company has “a lot of vacancies.” He’s also thankful that his company kept leverage, and mortgage payments with it, low over the years.

With record numbers of retailers nationally closing — 60 major retailers in 2020 alone went out of business and more than 12,200 stores were shut — vacancy locally is following suit.

A preliminary year-end 2020 report by Moodys Analytics REIS put vacancy in the Cleveland Metropolitan Statistical area at 14.4{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38}, compared with 10.5{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} nationally among the country’s 77 largest MSAs.

Moodys does not produce regional enclosed mall statistics, but estimates vacancy in the hard-hit property type climbed to 10.5{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} at the end of 2020 from 9.7{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} at the end of 2019.

Online realty data provider CoStar estimates more than 1 million square feet, a record, of retail space was vacated in the region last year.

That’s what results when Shoppes at Parma loses its J.C. Penney store, the last Sears store in Northeast Ohio closes at Great Northern Mall, and the Stein Mart chain shuts down, emptying three stores in the region, on top of multiple smaller ones.

With a welter of store closings and bankruptcies erupting in the first month of 2021, CoStar also forecasts another 1 million square feet of empty space will hit the Cleveland-Akron market this year.

Against such a context, Bob Nieto, the owner of R.G. Nieto Management Co. of Hinckley who heads investor groups owning open-air centers in the 100,000 to 250,000-square-foot range from Sandusky to Painesville and as far south as Canton, counts himself lucky things have not been worse.

Even so, he points out the anomalous impact of the pandemic economy: tenants needing rent relief. He said he provided three months of deferred rent during last spring’s lockdown that tenants had to repay later.

“I was surprised only 25{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} of the tenants took it,” Nieto said. Although he is thankful things weren’t worse, he noted his own signs of store carnage, such as the loss of three large-format Chinese buffets, although smaller Chinese restaurants generally fared OK.

“For those that suffered, others did better, such as grocers and dollar stores,” Nieto said.

A saving grace for landlords was that new stores kept on entering the region so leasing remained dynamic.

Tori Nook, a principal at the Anchor Cleveland retail-focused brokerage in Beachwood, said that after the lockdown ended last year, leasing action returned, with everything from new food purveyors to expanding auto parts, dental and a cadre of wellness-related tenants.

Although some empties stand out at various centers, Nook said finding good locations for small tenants under 10,000 square feet remains difficult. Some operators also are fine-tuning their operations.

“Chipotle is on a rampage seeking drive-up windows,” she said, and pointed to former Giant Eagle and Toys R Us locations being turned into self-storage centers.

CoStar estimates, however, that about 1.4 million square feet was leased in Northeast Ohio in 2020, about 18{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} below the three-year average for leasing action.

Rents in the area are also down more than 1{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} in 2020 from 2019, CoStar said, though it doesn’t disclose a specific number.

The ultimate challenge for retail landlords in this context will be making their mortgage payments.

Pain is already striking both recently completed and landmark shopping centers. The Pinecrest mixed-use center in Orange Village went back to its lender last year. And venerable Shaker Square in Cleveland was hit in January with a foreclosure proceeding.

Trepp, a mortgage information provider in New York City, shows how much of a challenge is brewing for some retail landlords.

Nationally, Trepp puts the more than 30-day delinquency rate in the retail sector at 12.7{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} from 4{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} a year ago, although it is lower than a peak of 18{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} in mid-2020. (It does not provide local data at this time.) The numbers decline as landlords cure defaults or win some form of lender relief.

Nieto feels the advent of mass vaccinations will lead to a better retail environment. Indeed, he looks forward to a resurgence in demand for space in 2022.

The optimistic attitude is common among shopping center owners. The International Council of Shopping Centers trade group reported last Thursday, Feb. 4, that a national survey found 60{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} of retail landlords and 55{409126f2c1f09c9e510a010c163a4bce2c3ccfc4019bdf864d6cb2d5d8752f38} of retailers expect a return to pre-pandemic business levels by the end of 2021.

However, that’s also after the pace of change accelerated as bricks-and-mortar operations added curbside pick-up and online ordering to cope with increased online retailing during the drive for contact-less shopping in the COVID-19 era.

For his part, Khouri feels that the viability of the shopping center business may be at risk. He said he remains glad his company has been active in other segments, such as office leasing and deals for federal tenants such as the FBI and the Veterans Administration through the General Services Administration.

“I think this is a changing trend in how people buy products,” Khouri said. “The longer this pandemic hangs around, the more purchasing patterns change, and the more consumers will continue to use (online shopping) after it’s over.”