Recession-Resistant Cash Flow Through Grocer-Anchored Shopping Centers
If you have been paying attention to the commercial real estate investment space, you know that grocer-anchored retail centers have been one of the hottest asset classes since The Great Recession. Despite the increased attention to this space, there is still a significant amount of opportunity due to a combination of a few key facets of this asset class as well as our sponsors’ extensive track record in the industry.
Below are a few reasons how grocer-anchored retail centers can provide investors with a lucrative ROI with tremendous downside protection.
Grocery stores create steady foot traffic. Grocery stores attract shoppers on a regular basis, and many customers return two to three times a week. This provides consistent foot traffic, which will usually result in increased business for surrounding stores. Businesses considering leasing space in these strip malls are well aware of this phenomenon and are willing to pay a higher price per square foot than for competing facilities that lack large grocery stores.
People need to eat in all phases of the economic cycle! Grocery stores are non-cyclical businesses because people need to eat whether the economy is strong or weak. As an investor, this inelastic demand is very important because it mitigates the risk that an economic downturn may eliminate the demand for your anchor tenant’s product.
It has been proven to be difficult for Internet-based grocery suppliers to compete with brick-and-mortar grocery stores in a meaningful way. Despite the ever-increasing reach of software and the Internet, even the most well-funded corporations have not been able to make a significant dent in this facet of the economy due to several key facets of the grocery business. This mitigates the short-term risks of technological changes causing significant damage to the bottom line of brick-and-mortar stores. Having said that, it is important to take note of the entire rent roll of a facility to ensure your investment is not over-exposed to potential “death by software.”
The industry is booming. According to a recent report from Cushman & Wakefield, as of the close of the first quarter of 2016, U.S. shopping center vacancy stood at 7.9%. This is the 16th consecutive quarter in which overall shopping center vacancy either remained steady or declined.
We have extensive relationships with some of the leading shopping center operators in the U.S. Since 2012, we have been investing with several groups that are extremely proficient in the space. These operators have relationships with property managers and Fortune 500 companies throughout the nation, which can result in quick lease-up of vacant space. Together, these groups have more than 100 years of experience and $1 billion in closed transactions.