While the Southern California market parallels the national market, cap rates are tighter. According to Co-Star, cap-rates have remained consistently in the mid-4% range for the last three years. From 2016 to 2018, there have been 18 total ALDI sales with an average cap rate of approximately 4.75%. As of now, there are seven properties on the market at an asking cap rate of 4.65%. “The interesting trend is that before 2018, single-tenant ALDI stores were predominately sold to local buyers,” Jeff Lefko, VP at Hanley, tells GlobeSt.com. “Between 2016 and 2017, 90% of the buyers were based in the same state as the property. However, in 2018, over 50% of all single-tenant ALDI transactions sold to California-based buyers. As ALDI has made its way into the western U.S., California buyers now understand ALDI's concept and their success. This stat also shows a bigger trend that California buyers are more willing to purchase properties leased to tenants that have existing locations in California.”

These pricing trends have benefitted property owners, particularly in Los Angeles, Orange County and San Diego. “Assets with sustainable market rents with predictable incremental rent growth long-term are what both institutional and private investors continue to seek in today's market,” says Asher. “Premium pricing will continue to be obtained for centers where grocers report top-tier sales. The demand for top-end grocers such as Whole Foods, Sprouts, and Trader Joe's will remain at the top of investor's shopping lists.”

As a company, ALDI is making its own efforts to capitalize on the demand for discount grocery. The company has invested $1.9 billion to remodel existing stores and has allocated $3.4 billion more to acquire 800 new locations in the next four years. “In certain cases, ALDI is strategically relocating from inline box locations to more visible and accessible pad locations,” says Lefko. “ALDI is also looking to capture the growing online grocery store market. The company is in the early stages of a partnership with Instacart, in just a handful of cities, the online grocery delivery company. Early indicators suggest that this growth potential is 'overwhelmingly positive,' according to ALDI's U.S. CEO Jason Hart.”

In Southern California, ALDI stores have performed particularly well, driving pricing down at competing grocery stores. The market has been the catalyst for growth company-wide, and it is positioning for more expansion. “Southern California has been the pioneer for this company-wide transition and all signs point to it paying off,” says Lefko. “With an average footprint nearly one-fifth the size of a traditional supermarket, ALDI's sales per square foot are extremely strong and unprecedented. At a company level, ALDI's U.S. sales doubled between 2013 and 2018 and they expect sales to double again over the next five years. Real estate investor trepidation that ALDI might be the next Fresh & Easy in Southern California is behind us. ALDI's plan to become the third largest U.S. grocer by store count (behind Walmart and Kroger) by 2022 is further proof ALDI is here to stay in Southern California and continuing to expand north in the Golden State.”