Did Amazon’s Acquisition of Whole Foods alter the Net Lease Grocery Sector?

It was big news when Amazon announced they were buying Whole Foods. Amazon was expected to ramp up their fresh food and cut prices in Whole Foods. Speculations about what this meant for the internet giant and future of the grocery industry ran wild. We wanted to look at a few measurable effects in the net lease market in the 12 months before the announcement of the acquisition and from the announcement to present.

The average cap rate of single tenant net leased grocery stores is nearly identical before and after the merger. This non-movement mirrors the consistency in the wider STNL market which saw average cap rates move by 2 bps. The number of sales from before the announcement is slightly larger than the number of sales after, however this is driven mostly by the different lengths of time. We have 55 comps in the 12 months leading up to the announcement and 45 comps in the 10 months following the announcement, roughly four and a half sales per month for each time frame.

We expected a high number of sales at high cap rates due to investors trying to divest but cap rates have remained steady, on par with the rest of the net lease market. That is not to say the sector has not experienced difficulty and change over the last 12 months. Some tenants such as Winn-Dixie have undergone financial trouble and have declared bankruptcy, while others have adapted to change technology and customer preferences.

Many stores now offer online shopping with curbside or home delivery as a way to compete on the convenience front. Prepared food and meal kits are growing in grocery stores as stores try to keep up with their customers.

While the grocery industry is undergoing changes in tenant mix, technology, and customer trends, the acquisition of Whole Foods by Amazon did not have a noticeable effect on grocery sector.

The views expressed here are the author’s own and not that of ALM’s Real Estate Media Group.