Positioning Retail Real Estate for a New Generation

November 27, 2017

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Food for Thought: Change Brings Opportunity for Grocery-Anchored Properties

Growth by Established Brands, New Entrants Driving Activity in Northeast Market

By Matthew K. Harding, President
Levin Management Corporation
North Plainfield, N.J.

Investor affinity for grocery-anchored shopping centers has endured through market cycles and the continually evolving landscape of retail, itself. Simply put, properties with supermarkets do better than those without, drawing strong and steady traffic that boosts leasing appeal and, subsequently, return on investment.

The Northeast market is experiencing several noteworthy shifts within this sector – including growth and investment by established brands, new entrants, and increased grocery offerings in non-traditional outlets.

For example, long-time regional staple ShopRite continues to build its market share and improve existing stores. At the LMC-leased and managed Wall Towne Center in Manasquan, N.J., a recently expanded, 71,000-square-foot ShopRite features larger produce and natural foods departments, and a cooking classroom. A similar ShopRite project is wrapping up at the LMC-managed Mansfield Plaza in Hackettstown, N.J.

ShopRite, Stop & Shop and Whole Foods for many years represented just a few expanding brands in our market. That, too, has changed. ACME re-entered the arena aggressively, acquiring approximately 70 stores tied to the A&P bankruptcy. Today, German grocer Lidl is among the region’s newest entrants, with stores planned in the 35,000-square-foot range.

Aldi is accelerating its expansion here as well. The company just opened a 23,400-square-foot store at Flemington Marketplace in Flemington, N.J. Sav-A-Lot also is growing, targeting a similar square footage. On the smaller side, Trader Joe’s and other specialty and ethnic brands continue to seek locations. In fact, LMC’s North Village Shopping Center in North Brunswick, N.J., is home to one of the newest Trader Joe’s. The 13,000-square-foot store opened in October.

Grocery has moved from brand consolidation to growth. This is driving competition at a time when consumers have abundant options for purchasing groceries, from online giant Amazon, to Walmart and Target stores with full-scale grocery, to easy grab-and-go offerings at pharmacies, dollar and convenience stores. Amazon’s acquisition of Whole Foods – arguably the most high-profile example of online retailers getting into the bricks-and-mortar game – signals continued shifts within the sector, and an endorsement of the key role physical stores play in overall retail strategy. Convenience is key.

So while grocery is not a new topic for our industry, it is again rising as one of the most interesting. Grocers are working to distinguish themselves with enhancements like online ordering, in-store demonstrations, more proprietary and prepared foods, and café-style seating. Overall, they are working to provide better experiences for their customers.

Landlords, in turn, must exercise more flexibility. Shop-from-home ordering requires dedicated parking and in-store space. New size requirements may necessitate space reconfigurations. And, as always, curb appeal is paramount. To this end, our clients are investing more capital in property updates, and we are seeing increased demand for experienced third-party commercial real estate services providers, like LMC, that offer in-house construction along with traditional property management and leasing capabilities.

The takeaway? Buying food is changing, yet that change is bringing opportunity. Ultimately, bricks-and-mortar grocery remains on solid footing, and owners of grocery-anchored shopping centers – especially those focused on providing meticulous maintenance and functionality – are positioned to benefit.

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