Grocery-Anchored Neighborhood Shopping Centers Deliver the Goods

During the past 15 years, grocery-anchored retail centers stand out in terms of garnering premium rents, achieving the highest occupancy levels, and generating consistent foot traffic as they provide the local community with daily needs, products, and services, James DeCremer, principal, Avison Young, tells GlobeSt.com.

“In the retail world, this asset type continues to be the gold standard for capital investment and tenants,” DeCremer said.

He said that in the Phoenix market, while new development has been conservative over recent years, grocery-anchored centers lead the charge in terms of new projects and have been experiencing strong pre-leasing activity with top-of-market rents. Grocery stores including Sprouts, Fry’s, Safeway, and Costco have been very active in expanding their locations in Phoenix over the past 24 to 36 months.

It and other retail trends were key topics on Monday at the ICSC conference in Las Vegas.

Mike Conway, vice president of national accounts and retail partnerships at grocery-anchored neighborhood shopping center operator Phillips Edison & Company (PECO) said during the conference.

“Consumer demand for necessity-based goods and services continues to be strong, and so does retailers’ demand for space in grocery-anchored neighborhood shopping centers as they continue to expand,” Conway said.

Conway said the most active categories continue to be medical, quick-serve restaurants, and health and beauty. He said there has been consistently strong demand across all geographic regions.

One growing retailer he pointed out is the Japanese dollar store Daiso, which is rapidly expanding across the US.

Daiso announced at the end of last year its intention to open 25 to 30 new locations across the US. The global cult favorite has made good on those plans with several store openings in the first quarter of 2023 that have driven significant consumer interest and round-the-block lines by refreshing its inventory with hundreds of new products monthly, capitalizing on the treasure hunt environments that have been successful for TJ Maxx, Marshalls, and others, Conway said.

Among the growing quick-service restaurants, PECO’s National Accounts and Emerging Trends team notes that Sweetgreen, True Food Kitchen, Salad & Go, Dig and Vitality Bowls are highly active in seeking new locations for expansion.

PECO has also seen a rise in the specialty sweets and treats category targeting aggressive expansion. These include drive-by drink shop Swig Soda, creative cookie maker Crave, signature donut maker Pinkbox Donuts, and Wow Wow Lemonade Stand. The medical – or “medtail” – category also continues to provide strong demand.

Artificial intelligence is the word of the year, and retailers across categories are looking for innovative ways to leverage newly available capabilities to improve customer service and experience. For example, earlier this month Wendy’s announced a partnership with Google Cloud to pilot Wendy’s FreshAI.

Gary Glick, Partner, Cox, Castle & Nicholson, tells GlobeSt.com that despite the slowdown in the economy and in retail due to the current high interest-rate environment, “Strong traffic to grocery stores continues to attract other retailers and food users to these types of centers.”

Glick said the most common co-tenants for these grocery-anchored shopping centers are fast food, coffee, beauty supply, and medical use tenants.

Christine Mastandrea, chief operating officer, Whitestone REIT, tells GlobeSt.com that the pandemic reshaped physical retail in a way in that retailers no longer need excess space, and exterior-facing frontage is key.

“Leading national brands and local operators are now seeking between 2,000 to 3,000 square feet of space with easy access to parking and prime visibility,” Mastandrea said. “Grocery and necessity-based shopping centers are thriving because they offer retailers everything that they need to succeed in today’s chance to be surrounded by a synergistic retail mix.”

Mastandrea said that her portfolio of community-centric centers benefits from blending traditional retail with dining – both local to the area and national concepts, creating a flywheel effect of sorts, in which retail supports restaurants and restaurants support retail.

For instance, an individual or family who is coming to one of our properties to shop may decide to grab breakfast, lunch, or dinner at a restaurant in her portfolio. Or, after they finish eating, they may decide to pop into a shop or two.

She said Whitestone is benefiting by having all its properties in the South, where weather is typically warmer year-round, and restaurants in its centers can offer consumers the chance to sit outside.

“Furthermore, the tenant mix of a grocery or necessity-anchored shopping center isn’t overwhelming, unlike a mall which is heavy on choices but not synergistic at all,” Mastandrea said.

Sean Unsell, Associate Principal with RDC’s Grocery Group, tells GlobeSt.com that during the past few years, RDC has adapted a significant amount of vacant large format retail spaces to grocery stores. “This often provides an opportunity to re-activate centers in desirable locations that have fallen victim to the economy,” he said.

“By adapting the existing buildings, we are able to open the stores much quicker and save time and money on construction costs. Smaller format grocery anchors also allow for more flexibility with leasing and subdividing the larger spaces into several uses complimentary to the grocery anchor.”