Apartments with Ground Floor Whole Foods, Trader Joe’s Earn Premium Rents
When a premium grocer is an apartment building, that community will often capture more than its fair share of market demand.
For more than a decade, apartment developers have talked about their desire to be near a Whole Foods. Their rationale: Proximity to the premium grocer would lead to higher rents. If that location were in your building, the results could be even better.
In a 2016 study, RCLCO backed up these assertions with an analysis that showed ground-floor Whole Foods can drive rental premiums, enhanced absorption and accelerated rent growth in the buildings that they occupy.
After Amazon acquired Whole Foods in 2017 and other premium grocers gained market share, RCLCO decided to study whether the presence of these grocers helped apartment buildings earn premium rental rates, achieve higher rent growth over time and capture outsized demand during lease-up.
RCLCO found that apartment communities with Whole Foods on the ground floor earn, on average, a rental rate premium of 5.8% above comparable apartment communities in the immediate local area. This is a 1.5% increase compared to its 2016 findings.
Trader Joe’s also scored well. Buildings with that retailer also commanded a 5.8% rent premium. Buildings with other grocers fell behind Trader Joe’s and Whole Foods, but still fetched a rent premium of 3.3%.
Properties with a Whole Foods that achieved the highest premiums also experienced the most substantial rent growth, which RCLCO says reflects a positive linear relationship between rent premium and rent growth. On the other hand, in communities with a Trader Joe’s, higher premiums did not correspond with more robust rent growth.
When a premium grocer is an apartment building, that community will often capture more than its fair share of market demand, according to RCLCO
“We profiled the absorption performance of eight of the case studies with ground-floor premium grocers,” wrote Derek Wyatt, Vahe Avagyan and Nicholas Stefanoni. “A new building with a ground-floor, premium grocer can expect to lease-up units at a pace at least on par with—but frequently above—its fair share capture of submarket absorption during the lease-up period. When these grocer-anchored buildings first open, their capture rates tend to exceed their fair share of submarket demand, but stabilize to approximately fair share levels over time.”