Why I’m Bullish on Grocery-Anchored Shopping Centers

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Karim Fadel Karim Fadel

By: Karim Fadel, founder and principal, Unison Realty Partners

Today’s commercial real estate investors have many options for placing their capital — from buying shares in REITs, to backing the housing or office market — but as the economy continues to strengthen and different property types gain favor, these investors are faced with inconsistencies.

I’m bullish on grocery-anchored shopping centers because they are easily accessible, convenient suburban retail hubs. Grocery-anchored shopping centers consistently serve the basic daily needs of the neighborhoods and communities that surround them — providing everything from food, dry cleaning and alcohol, to health services. Many have evolved into a social meeting place where the community can physically come together at a time where interpersonal interactions are being increasingly dominated by virtual connection. Despite the rise of Internet shopping, these centers serve an important necessity that is not going away. In fact, e-commerce currently accounts for just eight percent of retail sales in the U.S., according to reports by DTZ. Consumers aren’t abandoning brick-and-mortar shopping, and as retailers continue to experiment with new concepts and technology to meet shifting consumer habits, their appeal will continue to grow. 

The ability to adjust to the changing needs of consumers has become critical for grocery-anchored shopping centers. As retailers have gained a better understanding of what consumers want and how they want to be engaged with, they have been able to adapt their previous, in-store-only strategy to much success. A study by IDC Retail Insights recently found that omnichannel shoppers — those who shop both online and in-person — spend up to 3.5 times more than single-channel shoppers. In practice, this means giving shoppers the flexibility to order online and pick up in-store, make returns in-store or even use digital resources to track what’s available in a brick and mortar location. The more retail touch points, the more opportunities to convert a sale. For consumers who have begun to express preference for experiential shopping, this is how brick and mortar stores can differentiate themselves — in the physical space.

According to a recent ICSC report, the U.S. shopping center industry is meeting year-over-year growth in occupancy rates, rents and net operating income. At the end of fourth quarter 2014, shopping center occupancy rates were 92.7 percent — the highest level since second quarter 2008. Base rents rose 6.5 percent year-over-year in 2014, a third consecutive year of growth and the strongest level since 2008. Construction is also booming, with the development of new and existing structures reaching $14.5 billion in 2014 — the highest level since 2008 and the fourth consecutive year of growth. Investment volumes continue to climb as well. At the end of third quarter 2015, retail investment volumes were up 8.5 percent from year-ago levels at $8.8 billion.

So what does this mean for the average consumer? While online shopping continues to grow, the vast majority of people still want to pick out their own produce and other items from a brick and mortar grocer. As the push for local, fresh food continues, grocers like Sprouts, Whole Foods Market and Trader Joe’s will see growing demand. Even online grocery delivery services are using these stores to gather their orders for local customers.

Grocery-anchored shopping centers aren’t going anywhere. They have gained our loyalty by providing a convenient place to purchase the goods and services we need each week. Flexibility in responding to the changing needs of consumers, and quickness to adapt to new practices to increase revenue have solidified the reputation of grocery-anchored shopping centers as a resource that’s here to stay. For investors, grocery-anchored shopping centers are reliable and low-risk relative to other real estate investments. People need to eat regardless of the season, economic landscape or any other extenuating circumstances.

Karim Fadel is the founder and principal of Unison Realty Partners, a Boston-based privately held retail real estate investment management firm focused on acquiring, repositioning, redeveloping and/or improving neighborhood and community shopping centers anchored by national or regional grocers. 

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