Acquisition activity in the grocery-anchored shopping center sector would suggest these assets are a popular type of investment.1 They usually house a grocery tenant alongside a mix of other retailers and service providers. Here are five reasons why we think grocery-anchored shopping centers may be worth a look.
- Essential retail: Grocery-anchored centers are anchored by essential retail – grocery stores. No matter the economic climate, people need to eat, which makes grocery shopping a regular and necessary activity.2 This fundamental need generally creates a steady customer flow and consistent sales, making these centers a relatively recession-resistant investment compared to retail properties driven by discretionary spending.1
- High foot traffic: Grocery stores typically attract a large number of shoppers on a regular basis, which typically can result in high foot traffic for the entire retail center. This constant flow of customers increases the potential for sales among the other tenants in the center and may contribute to higher NOI.3
- Tenant diversity: Grocery-anchored centers often include a mix of tenants that provide a range of services and goods, from restaurants and banks to personal care stores and specialty retailers. This tenant diversity may reduce the dependence on any single tenant.4
- Location advantage: These centers are usually located in densely populated residential areas, which may help contribute to a ready customer base. The strategic location also typically supports steady property values and rent rates.5
- E-commerce resistant: While many sectors of the retail industry have been affected by the surge in online shopping, grocery shopping remains a largely in-person activity. Although online grocery shopping has grown, many consumers still prefer to physically choose their fresh produce and other food items. This helps to protect grocery-anchored centers from the disruption of e-commerce.6
In addition to more general risks such as high vacancy rates, oversupply of product in the market, and credit quality of tenants, some of the factors that can impact the success or failure of retail investments include the length of the lease(s) and whether it’s single or multi-tenant.
Investors can find a variety of commercial real estate offerings like these across different categories on the CrowdStreet commercial real estate investing platform.
1https://commercialobserver.com/2023/05/grocery-anchored-retail-2023/
2 https://www.us.jll.com/en/trends-and-insights/research/grocery-tracker
3https://www.wealthmanagement.com/retail/grocery-anchored-shopping-centers-remain-demand-they-are-going-mostly-private-and-all-cash
4https://www.wealthmanagement.com/retail/value-add-opportunities-grocery-anchored-sector-are-hard-find-and-even-harder-execute
5https://www.wealthmanagement.com/retail/suburban-retail-has-been-outperforming-urban-properties-will-trend-continue
6https://www.wealthmanagement.com/retail/more-investors-eye-grocery-anchored-shopping-centers-better-risk-adjusted-returns
Market volatility or lack of liquidity could impair an investment’s profitability or result in losses. Factors such as high vacancy, oversupply of the product in the market, increase in interest rates for borrowing loans, bad credit quality of tenants occupying the property, general economic risks such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws and general overall deterioration of the market in which the asset sits, all of which could lead to financial difficulties and impact net operating income and can depreciate the value of the property. These factors, in addition to others including increases in the costs in excess of the budgeted costs, the burdens of ownership of real property, environmental liabilities, contingent liabilities on disposition of assets acts of God, pandemics and other national, regional or local emergency conditions, terrorist attacks, and war may affect the level and volatility of asset prices and the liquidity of investment assets.
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