Grocery-Anchored Centers Will Be Hot Again in '05, Crossman Predicts

ORLANDO-Grocery-anchored shopping centers, hot in 2003 and hotter in 2004, will be blazing in 2005 investment sales, John M. Crossman, senior vice president of retail investment services, Trammell Crow Co., told the Central Florida Commercial Real Estate Society's 2005 Outlook Conference at the Downtown Citrus Club today.

"Mainly driving this investment trend in Florida is the incredible residential growth that continues to increase year after year," Crossman said. "Conservative demographic studies indicate that for the next 10 years, some 250,000 to 300,000 people will move to Florida annually."

The broker said those projected numbers "break down to 1,200 new people added every week to the Central Florida area alone. With it taking about 30,000 people to support a typical grocery store, theoretically, Florida's population growth could support 25 to 30 new grocery stores every year for the next decade."

Crossman said "the stable perception of grocery stores also is contributing to the increase in demand. Grocery store sales tend to be very constant and are less vulnerable to negative economic effects." He added "bigger ticket items tend to suffer the most during such periods, while grocery sales remain consistent because people always need to buy groceries."

Strong demand by investors for grocery-anchored shopping centers "can also be explained by the relatively low interest rates, which are making more capital available for investments in general," Crossman said. "The growing acceptance of real estate as a genuine investment class, and the fact that real estate, particularly retail, is no longer viewed as the high-risk investment it once was, also has strengthened the industry."

Two of the hottest shopping center investment areas in Florida are the Panhandle in the northwest area of the state near the Alabama border and South Florida which takes in Miami, Fort Lauderdale and West Palm Beach.

"South Florida is leading the country, along with Southern California, with the lowest cap rates for strip centers anywhere," Crossman told the 200 real estate professionals attending the conference. In Northwest Florida, the Panhandle, "once viewed as a rural frontier land, is now becoming one of the hottest growth areas in the entire Southeast United States."

REITs and developers are the two leading types of buyers for grocery-anchored shopping centers. "The top buyers continued to be Regency, Ramco and Colonial Properties Trust. Pensions funds and private investors also are consistent purchasers, as they continue looking for stabilized investment assets."

The broker put developers in the second category, behind REITs. "Developers are looking for opportunities to purchase centers as value-added propositions," Crossman said. "Typically, they try to find dark anchors, such as a vacant Kmart, so they can purchase, lease up and then re-sell" the asset. He pointed to Boca Raton-based Woolbright Development as one of the leading buyers of strip and neighborhood centers.