While the retail sector as a whole has defied expectations by its strong performance in recent years, the grocery-anchored component stands out, according to a new report from Trepp.
“Within this broader retail ecosystem, grocery-anchored retail continues to draw institutional capital and attention across the capital stack,” the software firm stated.
At the same time, grocery-anchored centers don’t benefit equally. Investors and lenders tend to prefer centers with national grocery brands. These centers are favored in securing debt, while properties backed by local or regional grocers often face stricter scrutiny, the report said.
Recommended For You
Overall, grocery-anchored CMBS issuance has rebounded significantly. In Q4 2024, $604.9 million within the sector was issued, compared to $122 million in Q1 2023. Over $1.7 billion was securitized over the last three quarters, the strongest performance since early 2022.
Trepp’s review of all retail CRE transactions from 2018 to the present showed sales volume was lower, but pricing is higher. It said this suggested “a market increasingly focused on top-tier assets, including grocery-anchored centers with strong tenants and long-term leases. Institutional players remain active, but with sharper selectivity.”
“The divergence by anchor type and tenant quality: national vs. regional vs. local grocers in particular, is increasingly driving pricing, spreads, and refinancing risk,” the report stated.
For national grocery-anchored shopping centers, cap rates have held relatively steady, lying between 6.37% to 6.8% over the past six quarters. Valuations for regional anchors show moderate investor confidence at 6.7% to 6.9%. However, local grocers face more volatility, with cap rates among those surging to 8.46% in Q4 2024, before then tightening to 6.5% in Q1 2025, “suggesting valuation compression for perceived tenant risk and a broader shift toward grocery-anchored away from other tenancies,” the report said.
“While grocery remains a preferred subsegment, investors are demanding higher risk premiums for assets lacking brand recognition, investment grade credit, or stable lease terms.”
Underwriting will need to become more selective to give lenders and investors the ability to accurately separate winners from underperformers, the report added.
Trepp noted that debt yield data underscores some emerging combination of deteriorating net cash flow and/or lender discipline, advancing less leverage. In Q1 2025, grocery-anchored debt yields averaged 11.63%, compared to 11.99% in Q1 2024, while the overall retail average debt yield stood at 13.16%.
Maturity exposure is also relevant. In 2026, $3.6 billion in grocery-anchored loans will come due, of which $2.5 billion will have debt yields with a 7% to 12.99% range. “This cohort includes substantial 2025 maturities with lower going in underwritten cap rates and potentially tighter cash flow margins in refinancing scenarios,” the report said.
“Grocery-anchored retail continues to outperform in both the public and securitized markets, but the margin for error is narrowing. Property selection, tenant credit, lease term, and cash flow trajectory determine whether assets trade at premiums or require pricing concessions."
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more inforrmation visit Asset & Logo Licensing.
