Grocery anchors are hot properties in shopping centers
By Marilyn Bowden
Grocery-anchored neighborhood shopping centers are among the hottest commodities in the commercial market, experts say, with Miami-Dade chains adopting new strategies to keep up with population growth.
"Of all property types, retail has probably been least affected by the recession," Grubb & Ellis researchers reported in the summer 2002 edition of Retail Market Trends. "Well-located grocery-anchored centers are at the top of investors' shopping lists."
Grocery-anchored centers in in-fill locations with good demographics command premium rates, according to the report, with cap rates in the low 8% range at the end of the first quarter that compares with an average 9.3% rate for all retail investment.
"Many investors shun power centers, believing that their rosters of a few large tenants are too easily destabilized by competitors, Internet sales and the failure of publicly traded tenants to meet Wall Street expectations," Grubb and Ellis reported. "Other types of centers - lifestyle, entertainment and unanchored strip - also remain ignored for the most part due to the small pool of investors and the limited exit strategies available."
Mark Lasman, director of the national retail group at Marcus & Millichap, said he sees the market sector staying steady for the balance of this year and into 2003.
"Inventory in the marketplace is down," he said. "It's more of a sellers' market, particularly for food- anchored centers."
In Miami-Dade, Mr. Lasman said, where a scarcity of land is rerouting the population back into urban areas, "there's a tremendous demand for in-fill redevelopment opportunities. The grocery business is as aggressive as it's ever been at identifying holes in the marketplace.
"Publix, Winn-Dixie and Albertson's are looking for sites and holes in the marketplace where the demographics support new stores. Where we used to see a 2- to 3-mile radius between stores, their strategy now is to go to a smaller prototype of around 28,000 square feet with a 11/4- to 11/2-mile radius between stores.
"They are clearly outperforming projections and the rest of the state."
A very significant difference exists in performance centers with supermarket anchors and other kinds of shopping centers, said James Walsh, a director with Cushman & Wakefield's Valuation Advisory Services.
"Prices for grocery-anchored centers are going up," he said. "Definitely it's the most desirable form of retail investment. Entertainment centers have not been successful. Many are anchored by a theater, and the whole theater industry is under duress.
"Anchor tenants in power centers tend to be discounters and a number of them are having financial difficulties.
"Unanchored strips as a group are not as desirable," Mr. Walsh said. "One thing purchasers look for is the ability of the supermarket to draw consumers. This is a bigger issue today than it was five years ago, in part because of consolidation in the supermarket industry.
"Publix is No. 1 in South Florida, so it's viewed in a much more favorable light than any other food anchor."
While there's some concern about the impact of Walmart Supercenters, which include supermarkets, Mr. Walsh said, centers with a Publix are not considered as vulnerable as those with a Winn-Dixie or an Albertson's.
Doron Valero, president & COO of Equity One, a developer with a niche in food-anchored neighborhood centers, said the market has never been better.
"Most of our properties in Texas and in Florida are fully occupied and reporting good sales," he said.
Mr. Valero called grocery-anchored centers "the most stable product I know. The yield is 6%-8%. That's a good yield on something conservative."
A supermarket brings in 60%-70% of a center's income, he said, drawing thousands of customers a day.
"Without an anchor, it's a different business," Mr. Valero said. "We do have some. They're doing well. But having the supermarket anchor is definitely safer in the long run."
Equity One paid $8.9 million for Shops at the Meadows, a 75,526-square-foot shopping center at the southwest corner of Bird Road and Southwest 152nd Avenue. The center, which includes a 47,995-square-foot Publix, is 90.7% occupied, Mr. Valero said.
"This is typical of what we buy," he said. "We focus on service-oriented neighborhood centers with tenants such as H&R Block, inexpensive restaurants, hair salons, nail salons, mortgage companies, Blockbusters and dry cleaners."
He said Equity also bought a 12-acre parcel in Homestead for $1.8 million for another food-anchored center. The site is zoned for retail use up to 100,000 square feet, Mr. Valero said. It is next to a 56-acre site where 2,200 homes are expected to be built in the next three to five years.