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CHICAGO-If grocery chains such as Albertson’s and Safeway don’t heed the warning of Principal Real Estate Investors president and CIO Randall C. Mundt, owners of neighborhood shopping centers certainly should. “The threat of Wal-Mart to certain grocery chains is under-appreciated by much of the real estate community,” Mundt tells GlobeSt.com.

The “Wal-Mart issue” gets a full page in a joint forecast unveiled last week by Real Estate Research Corp., Torto Wheaton Research and Mundt’s Des Moines, IA-based firm.

The report, “Expectations and Market Realities in Real Estate 2004,” expects total returns from retail properties as measured by NCREIF to drop over the next to years to the 10% to 11% range. While that’s a come-down from the 14.7% to 17.3% territory over the last year, it is more in line with 10-year averages, the report notes.

Institutional investors surveyed by RERC are willing to buy neighborhood community centers at going-in capitalization rates as low as 7%, which may be a little too rich, Mundt suggests, in light of Wal-Mart’s move into the grocery market.

Considered the world’s largest grocer with a 14% share of the US market, Wal-Mart is expected to increase that to 35% over the next five years, according to the joint forecast.

“I don’t think you’re seeing a great appreciation of that in the pricing of grocery-anchored centers,” Mundt says.

Some of the surviving grocery chains are expected to be ethnic-oriented or specialty companies, such as Whole Foods and Trader Joe’s. Forward-thinking grocery-anchored center owners may want to court those potential tenants, as well as the heartiest in the home improvement, electronics, sports apparel and toy categories, Mundt advises.

All is not bleak, though, if retail owners fail to land a survivor as an anchor tenant, adds RERC CEO and managing principal Kenneth P. Riggs Jr. “What those people have going for them is they have good traffic patterns,” he notes, adding the properties could become viable teardown candidates.

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