The Right Anchor Tenant Can Unlock Value in Any Retail Property

Before the pandemic it was a truism that shopping centers lived or died based on their anchor tenant. One “black swan” economic shutdown later and they’ve proven their indispensability. The right anchor tenant can drive foot traffic, breathe life into a property and create tenant synergy, and it will ultimately amplify profitability and value, according to Gene Mello, VP of leasing at Matthews Real Estate Investment Services.

“The anchor tenant is the heart and soul of any project,” says Mello. “Every shopping center needs an anchor or anchors in order for it to stand the test of time. They remain critical in today’s environment and are always the most important piece of the puzzle.”

Grocery Is Always a Winner

Foundationally, a strong anchor tenant has good credit and a reputable name, and commonly, owners choose a soft goods or service retailer, but grocers are the most popular and sought-after. Mello says that most owners want a grocery anchor because the daily needs component creates foot traffic for the other co-tenants.  Also, as he puts it, “At the end of the day, everyone ultimately has to eat, so risk is always limited with the right grocer.” Grocery stores have been the preferred brick-and-mortar anchor for more than a decade because they are considered internet resilient, but the sector’s strength through the pandemic solidified grocery as an owner’s top choice.

In addition to grocers, soft goods retailers like Ross, TJ Maxx and Burlington Coat Factory or non-grocery service-based retailers, such as home improvement stores (e.g., Home Depot or Lowe’s), are also popular options for the anchor slot.

Lean into Market Research

Choosing the right anchor tenant for a property and the surrounding market is determined by research. Owners and their brokerage teams leverage a variety of data points—demographics, traffic patterns, local economic growth—to determine the best type of retailer for the location.

“We break down a market to determine what is a missing component, and all of that is critical in figuring out the dynamics of who is the right anchor tenant,” says Mello. Market research might show that a market is oversaturated with one type of retailer, or lacking the density to support another.

Retailers Want to be in California

Retailers executing national expansion plans will generally allocate 15-20% of new locations to California. The Southern California market in particular benefits from a large population, diverse demographics and year-round nice weather. “Retailers know that they can do a higher percentage of sales due to the density and overall consumer spending numbers in this market,” says Mello.