Pandemic Strengthens Demand for Grocery-Anchored Retail

The pandemic has strengthened demand for grocery-anchored retail assets. Grocery-anchored retail was already an investor favorite in the last cycle—due to the increase in online shopping—but the pandemic has proven that grocery stores perform well not only during a downturn, but during a crisis. As a result, investors have continued to bet on these assets and transact during the downturn.

“We have seen demand for grocery-anchored assets during the pandemic,” Gary Stache of CBRE tells GlobeSt.com. “Grocery stores have been allowed to stay open during this time and sales at these stores have increased by and large. The ability for grocery-anchored assets to survive during periods of crisis has strengthened investor confidence.”

Stache along with Anthony DeLorenzo, Doug Mack and Bryan Johnson recently closed a Vons grocery store in the North Park area of San Diego. A private investor purchased the property in a 1031 transaction for $27.7 million. While the deal went under contract before the pandemic hit, it is an example of the strong demand for grocery assets. The pandemic did not derail the deal. “This was an attractive asset largely due to the fact that it is a single-tenant property with a long-term lease agreement in place,” says Stache.

In this particular deal, the North Park location also played a role in generating investor interest. “The location of the grocery store was also of significant interest to the buyer,” says Stache. “The North Park neighborhood of San Diego has undergone a remarkable resurgence in the last five to ten years and is now viewed as a desirable urban environment just north of Downtown San Diego. The population growth in the area has allowed the grocery chain to maintain excellent sales figures.”

1031 exchange deals are still getting done today, and are largely leading market activity. This is true despite the extension granted to 1031 exchange deals. “We are seeing significant activity from 1031 exchange buyers looking for long-term, net-leased properties with good credit tenants,” says Stache. “There are a limited number of good options that fit these criteria, which keeps demand strong. That being said, some exchange buyers have delayed looking for properties in hopes that there will be more and better opportunities coming to market. These investors are also hoping that the debt markets begin to improve. We expect to see significant pent-up demand starting in June, as the 1031 exchange deadline approaches.”