Grocery-Anchored Shopping Centers Still Reign in Retail
Investor interest in high-performing grocery-anchored retail assets continues to grow, pushing cap rates down and pricing up.
“We’ve seen interest continue to increase due to the lack of available supply of high-quality grocery-anchored properties on the market,” Kirk Brummer, director at CBRE’s national retail partners west group, tells GlobeSt.com. “High-performing grocery-anchored centers have been a staple in every real estate cycle—their ability to withstand economic downturns and to generate consistent cash flow growth.”
While the retail market has been struggling this cycle—with many retail centers struggling to compete with ecommerce—cap rates have increased. However, cap rates for grocery-anchored retail product have trended downward while pricing has continued to grow. “While cap rates have increased over the past year for big-box-anchored centers, high-performing grocery-anchored centers have maintained their low cap rates and strong pricing,” Brummer says.
Retail has fallen out of vogue this cycle, but many capital sources are finding opportunities in high-performing grocery-anchored product because it is resilient both in terms of ecommerce shopping and during economic downturns. “Institutional investors appreciate that high-performing grocery-anchored retail centers have historically been the most secure retail investments as they consist of “daily needs” tenants who are more resilient to economic downturns and are more resistant to internet competition,” adds Brummer. “Additionally, these grocery-anchored community centers typically generate stronger cash flow growth with a CAGR—compounded annual growth rate—exceeding the rate of inflation.”
Brummer recently brokered the sale of Santa Fe Trail Plaza, a grocery-anchored retail center anchored by a Superior Grocers as well as Ross Dress for Less, Petco and several quick-service restaurants, which have also become a popular retail trend. The deal saw tremendous interest, underscoring the popularity of these assets. “Santa Fe Trail Plaza offered investors a high-performing grocery-anchor in Superior Grocers combined with a complementary mix of national credit tenants such as Ross Dress for Less, Petco, Five Below and Starbucks catering to the surrounding densely populated trade area,” says Brummer. The sales prices was not disclosed, however, industry sources tell GlobeSt.com that the property traded hands for $41.4 million.
Although new trends are emerging in retail—and the market is rapidly changing—Brummer says that grocery-anchored retail will continue to be highly sought after. “As long as the supply for high-performing grocery-anchored centers remains low, healthy institutional investor demand will continue to fuel this trend of lower cap rates and strong pricing for this product type,” he says.