Blackstone Strengthens Foothold in Grocery-Anchored Retail

Expect grocery store-anchored shopping centers to be on investors and developers’ lists in the coming month as value in this real estate type is soaring in many areas of the country.

Case in point is Blackstone’s new investment in a portfolio of six Publix-anchored Sunbelt region shopping centers in a two-step deal. 

First, Kimco Realty acquired the remaining 70% interest in the portfolio from its existing joint venture partner, Jamestown, for $425.8 million. 

Then, the REIT entered into a 50-50 joint venture partnership with Blackstone Real Estate Income Trust. Kimco will continue to manage the portfolio on behalf of the joint venture.

The six assets total over 1.2 million square feet of gross leasable area in infill markets throughout the Southeast, with five located in the top-performing South Florida market, and one in the high-growth Atlanta market. Kimco’s original 30% interest in the portfolio was acquired through the company’s recently completed merger with Weingarten Realty.

The Advantages of a Grocery Anchor 

Patrick Nutt, executive vice president, market leader, South Florida, SRS National Net Lease Group, tells GlobeSt, “If you own a grocery-anchored retail asset, featuring a best-in-class grocer like Publix, you should benefit from higher occupancy rates, higher rental rates, and values based upon a lower capitalization rate than those properties without the such an anchor.

“We expect to see continued heightened demand for grocery store assets from both public and private investor profiles.”

Nutt said cap rates in top markets are well into the 3 to 4s.

“An example of this is a high-profile Vons net lease grocery store asset SRS is taking to market at $43 million, 3.50% cap rate in the Los Angeles MSA,” Nutt said. “This reflects the ultra-high demand in the sector and the lowest cap rate environment on record for the product type we’ve seen.”

Impressive Foot Traffic

James DeCremer, principal, Avison Young, from its Phoenix office, tells GlobeSt, “Grocery-anchored retail properties remain a top choice for national and regional retailers. Grocers did extremely well during the pandemic and other tenants in these centers benefit from stronger sales and higher foot traffic.”

DeCremer said that in the greater Phoenix market, and throughout Arizona, grocery-anchored centers continue to be a strong draw for both tenants and investors, in part, due to the way the state handled the Covid crisis.

The state’s employment rate returning to pre-pandemic levels—coming in at 5.7% currently down from 6.2% in 2020—is another boon, he said. Additionally, the Arizona September 2021 jobs report showed 20,400 new jobs added. 

“This, along with strong population growth, all bodes well for retail in general, and particularly well for grocery-anchored centers as they are usually located in densely populated areas and appeal to customers’ essential/daily needs.”

Inline and Drive-Thru Pad Spaces

Matt Hammond, senior vice president & partner, Coreland Companies, tells GlobeSt, “Investors are really targeting this grocery-anchored asset class because it’s both experiential and necessity-based. While some big boxes have been hurt by online sales, grocery-anchored retail is thriving as the key destination for markets, pharmacies, restaurants and services.

“Additionally, these centers also benefit from inline and drive-thru pad spaces. Ultimately, they offer key opportunities to upgrade a tenant mix and create value.

The Sun Belt markets, just like Southern California’s Inland Empire, remain in demand,” Hammond said.

“With a partially remote workforce, these regions offer affordable, family-sized homes, not to mention great weather. Couple that with low mortgage rates and you get a migration of young families buying first homes, and a grocery-anchored sector in high demand.

Grocery-Anchored Retail Centers’ Essential Nature

Nutt explained that during COVID, “there was a clear bifurcation of grocery-anchored assets versus power centers and the like where the anchor was a soft-goods or experiential-based tenant such as gyms, movie theaters, etc. 

“While consumers certainly sped up the adaptation to online ordering for grocery goods, consumers still enjoy the ability to be selective on specific fresh produce, meats, etc. when it comes to the food they plan to cook at home.”

He said investors recognize this consumer driver remains, providing resilience to retail assets featuring grocery anchor tenants, and enhancing the value and rental rates at retail properties featuring a grocery anchor.

“Moreover, due to the essential nature of grocery-anchored retail centers, this segment of retail has benefited from some of the lowest vacancy rates in the industry the past 18 months or so, with traffic and sales increasing for nearly all grocers throughout the pandemic,” Nutt said. “This asset class has proven to be resilient despite public health mandates and restrictions. This has led to increasing demand for grocery investment property.”

An example of this is a Publix-anchored center SRS sold in Alabama, which was acquired and financed during the pandemic, and traded at a lower cap rate than was projected pre-pandemic, he said.

Nutt said that the benefits of having a grocery anchor are geographically agnostic, “however having a property anchored by the dominant grocer in a given market is what can separate one shopping center from the rest.

“Publix, the Florida-based behemoth, remains the best-in-class grocery operator in every market they enter, and the Blackstone-Kimco transaction displayed the demand for high-quality assets in top-tier markets.”

Investors focusing on the Sunbelt is hardly a recent phenomenon, Nutt said, “but the population migration, job creation, and ability to attract a well-educated employee base over the past one to two years has widened the gap between the Sunbelt and other MSAs.

“Florida, Nashville, Charlotte, Dallas, Atlanta, Austin, for example, are all cities that have out-performed the likes of Chicago, Los Angeles, and New York since the inception of the COVID-era.”

New Concepts Emerging for ‘Grocery’ Stores

Nutt said there are a variety of grocery concepts that continue to vie for the anchor space in new developments.

For example, Amazon has added a new concept (Amazon Fresh), Publix is growing their organic-focused concept (Publix Greenwise), while other grocery tenants such as Kroger, Aldi, Sprouts and the like remain exceptionally active. 

Other value-oriented grocery concepts, such as Grocery Outlet, continue to expand, he said. Grocery Outlet opened its 400th location in June, and has plans to open multiple stores in several states as part of a “10% a year growth plan,” which projects 35 new units every year.