Grocery tenants have become the holy grail for retail owners, but with rapid expansion from several small grocers and some small brands shuttering in recent years, vetting grocery tenants has become an artistry. Brokers are looking at target audiences now more than ever before to ensure the store is a good fit for the center and the neighborhood. Still, grocery tenants remain the preferred anchor for shopping centers and there is plenty of tenant demand to go around. Mark Baziak, senior managing director at Newmark Knight Frank, gives us some insight into the leasing activity for these tenants, which ones are seeing healthy growth and how he is vetting grocery tenants to make sure they prosper in the shopping center.
GlobeSt.com: What is leasing activity like for grocery anchored tenants?
Mark Baziak: Grocery is still the most desirable anchor, and the reason for that is because it drives several trips a week. When you do that, you are going to attract the tenants that want to be next to that anchor, and they are going to pay you more and your terms are going to be better. Landlords are still very much desiring the grocery stores, but I am finding that my job is about being more cautious about grocery stores. I want to make sure that it is a successful store that has a lane to run in, and to make sure that they are a purposeful grocery store in what could be a changing demographic.
GlobeSt.com: We have seen a lot of grocery stores expand in recent years. How are you vetting grocery tenants today?
Baziak: Even for grocery stores, things have changed. Grocery stores need to have a target demographic in the area that needs to shop at a brick-and-mortar location. Often, I am looking at whether they are a deep discounter, organic focused or ethnic grocer. I am looking for something that is going to cater to the community. I am also looking for something that is going to be competitive with online grocery delivery. Those three categories seem to be the most active right now, and I believe that is the reason.
GlobeSt.com: While there have been a lot of grocers expand, there have also been several failed expansions. Are landlords concerned about taking on smaller grocers as a result?
Baziak: Absolutely. As a broker, I'll be the first to point that out: how is this different from a Hagan or a Fresh and Easy that failed in this market. We have seen instances where tenants were not sticking to their lanes. For example, being in both high- and low-income markets, when it can be hard to make sense of what type of customer they are targeting. When I look at tenants today and they appear to really know their customer, and they are only looking to expand in the areas where that target customer is, I don't think they are going to have any issues in the year to come.
GlobeSt.com: From which grocers are you getting the most requests for leasing opportunities, and which ones are less active in the leasing space?
Baziak: The big guys are looking, but they are not as aggressive. They are very calculated, and I think that is because they already have a pretty good saturation in the market. The smaller chains are still filling in a lot of areas that they have left to saturate. So, we are seeing that movement from those users. The ethnic grocers have been very bullish on expanding. I believe that we have a growing ethnic population, and that may be one of the reasons as well.
GlobeSt.com: With the deeper integration of online grocery and brick and mortar this year, are landlords alarmed about the future prosperity of grocery tenants?
Baziak: I think we have already heard the alarm, and I think that it was louder than it needed to be. Although ecommerce is a very powerful shopping experience, it still doesn't take the place of brick-and-mortar grocery. There is always going to be a certain number of consumers that don't want their groceries delivered sight unseen. I think that there is also going to be the experience of shopping that I think will make the best shopping centers thrive.
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Kelsi Maree Borland
