Like every other segment of the commercial real estate market, retail took a major hit in the downturn. Vacancies soared as established franchises left the scene, and the industry was forced to step back and reassess strategies.
Added to the tough economy was the advent of e-commerce, which has had a profound effect on the brick and mortar properties in retail. Big box stores in particular began to reassess space requirements as more purchases were made through online services. That’s where opportunity arose for grocery anchored tenants.
This has caused a shift in the makeup of shopping centers across the country. Moving forward, the trend is away from the big box stores as anchor tenants. These are the key retailers and service providers that regularly draw customers to a shopping center.
Investment interest in retail remains strong. Real Capital Analytics reported that the retail sector’s sales volume increased by more than 30% in 2014, and that is after a 10% increase the prior year. Total volume was nearly $83 billion, and interestingly $12.8 billion of that went to shopping centers anchored by grocery stores.
Following the downturn, it became more difficult to fill anchor spaces in shopping centers as the big box stores struggled to recover. Meanwhile grocery stores recovered to pre-2007 levels in less than 2 years, making them the new anchor of choice in many cases. Other retail segments such as department stores, electronics, and sporting goods have still not fully regained their pre-2008 strength.
Grocery stores were also less affected by another factor: e-commerce. As many retailers added an online component and mobile apps to their range of services, their need for physical space changed. Many stores that would traditionally be considered anchor properties – Staples and Sports Authority, for example- have moved to reduce their footprint.
Grocery stores, on the other hand, have been expanding their offerings. Following the lead of chains like Whole Foods, many now include café space and incorporate on-site dining. The fresh foods movement encourages more frequent visits to the grocery as well, often drawing consumers to the center every few days. This is helping to make grocery stores an obvious choice for the anchor location.
And these centers are proving popular and successful. When offered for sale, these properties can command low cap rates of around 5 percent to 6 percent or less. The presence of an anchoring grocery store helps to keep the shopping center vibrant and though it changes the paradigm a bit, the decline of the big box store does not signal doom for retail.
As the former favorite anchors restructure to accommodate online sales, those big box stores require less physical space and even parking. This creates an opportunity to reconfigure outdated shopping centers, anchored by grocery stores and offering a more pedestrian-friendly layout in many cases.
The popularity of grocery-anchored shopping centers is a reaction to their resilience in the downturn. The need to fill vacancies made these businesses a good choice, and their appeal to consumers boosts surrounding businesses as well. The configuration of shopping centers is ever-evolving, but there is no doubt that the current industry darling is the grocery-anchored center.