We've discussed some of the hottest trends in retail, including de-malling, shop-in-shop, experiential retail, and even the metaverse's potential impact. But let's shift from the revolutionary to the everyday and discuss what might be one of the most basic forms of retail real estate: the grocery-anchored shopping center.
There's a good chance you're just a few minutes' drive away from at least one of these shopping centers right now, and you likely remember them from childhood, too. Those are two big clues as to why these seemingly mundane properties are worth talking about right now. Grocery-anchored shopping centers have endured for decades. And perhaps even more impressively, they're continuing to endure against the serious headwinds they've faced recently.
Image source: Getty Images.
Let's take a closer look at grocery-anchored shopping centers. We'll explore their unique advantages as well as their recent performance in tough times to give you a better idea of whether now might be a good time to consider adding them to your commercial real estate portfolio.
Folks gotta eat
It's easy to understand why building a shopping center around a grocery store was a great idea and why the concept has had such incredible longevity. Groceries are a necessity, so people return to grocery stores on a pretty regular basis. Put other retail establishments close by, and those retailers will likely benefit from all the traffic. They may not even have to advertise at all. Remember the real estate saying: Location, location, location.
Of course, the pandemic meant grocery delivery skyrocketed. This left many wondering whether this would be a permanent behavioral shift that supermarkets might not fully recover from. But while there's certainly no shortage of grocery delivery trucks on the road now, the fact is that these retail establishments haven't been harmed a bit by this trend. In fact, grocery-anchored shopping centers saw their second most active quarter in 10 years at the end of 2021, according to commercial real estate services firm CBRE.
But these shopping centers weren't out of the woods yet. Next came inflation concerns, a serious ongoing issue. From stretched-thin consumers with less to spend to supply issues leaving less on the shelves, these problems have been no small threat to supermarkets. And in fact, they did leave a noticeable dent in grocery store foot traffic numbers early in the first quarter of this year. It was beginning to look like grocery might not be Teflon after all.
But remarkably, those numbers were already on their way back up again last month to around April 2019's levels, according to Placer.ai's May 2022 Grocery Deep Dive report. This seems to suggest that many consumers are adjusting to the shock of these ongoing issues and returning to something closer to their usual grocery habits.
This recent bounce back from a brief dip will likely only further fuel the increasing interest investors have shown toward grocery-anchored shopping centers. Real estate investment trusts (REITs) in particular have been taking note of grocery-anchored shopping centers and their strong performance, making up 17% of buyers last year versus just 9.8% in 2020, according to commercial real estate services firm JLL.
So should you invest in grocery-anchored retail?
We're so familiar with grocery-anchored shopping centers that they can almost fade into the background. They don't exactly dazzle us like experiential retail or metaverse shopping. But an increasing number of investors are taking note of the strong presence they've shown, especially through recent pandemic, inflation, and supply concerns.
As you continue to seek out investments likely to perform well against inflation, you may want to make sure your portfolio contains retail REITs that contain plenty of grocery-anchored shopping.
These centers have proven their endurance in an incredibly difficult environment. In the face of so much change, investors can take comfort in knowing that this real estate classic is unlikely to be heading for the retail museum anytime soon.
