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The grocery (real estate) bill is getting expensive


Pricing for grocery-anchored assets have increased 20% since 2012


Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year.


New grocery store openings were up 30 percent in 2018, with more than 17 million square feet of space added in the United States according to JLL’s Grocery Tracker 2019 report. And, those new store openings bode well for investors of grocery-anchored community and neighborhood centers across the U.S.


“Investors are looking for retail sectors that are reinventing themselves to stay ahead of changing consumer preferences, and grocery fits the bill,” commented Chris Angelone, Retail Capital Markets Lead, JLL. Disruption in the grocery sector – new discount players, Amazon acquiring Whole Foods and grocery delivery and click-and-collect – is proving that even needs-based retailers must evolve with changing shopping habits. Major chains such as Walmart, Kroger, and Giant Foods are all making investments in areas that aim to provide their customers with a flexible and reliable shopping experience that best suits their individual preferences.


Investment into grocery real estate totaled $9.9 billion in 2018. While this is down significantly year-over- year, grocery remains a bright spot


14 THE RETAIL INVESTOR


in 2019. Investor appetite for grocery product remains elevated, with top space seeing aggressive pricing. The average price per square foot for grocery has increased by 20 percent across the United States since 2012, and in primary markets the average price per square foot has increased by nearly 10 percent over the past two years.


However, grocery cap rates saw softening at year-end 2018, increasing 11 basis points from 2017. However, this can be attributed to the lower number of Trophy and Class A grocery-anchored center deals on the market. Despite this, assets like Safeway-anchored Diamond Heights Shopping Center in San Francisco achieved cap rates near 4.0 percent, with pricing at $635 per square foot for best-of-best grocery locations.


“While grocery investment saw a decrease in 2018, that may be due in part to stricter underwriting standards and lack of Trophy and Class A grocery-anchored deals on the market last year,” added Angelone. “However, we expect an uptick in premium grocery locations to go on the market in 2019 as REITs and institutional investors continue to dispose some of their smaller neighborhood and community centers.”


“Investors are looking for retail sectors that are reinventing themselves to stay ahead of changing consumer preferences, and grocery fits the bill.”


Chris Angelone Retail Capital Markets Lead, JLL


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