Post-recession momentum offers a chance to reinvent grocery-anchored properties.
retail real estate industry and its tenants are enjoying renewed,
post-recession momentum. Retailers are again expanding, providing a much-needed
boost to occupancy rates at well-located properties, and landlords are
investing capital in their centers. For shopping centers hard hit in the latest
downturn, particularly those that lost anchor tenants, the current momentum
provides an opportunity to reposition — and possibly reinvent — assets to
better serve and succeed in their marketplaces.
context, flash back for a moment to the late 1970s and early 1980s. E.J.
Korvette and W.T. Grant, once-thriving department store anchors, shuttered
their locations. A generation of successors, including the now-defunct Caldor
and Bradlees chains in the Eastern states, took over many of those spaces.
Today, brands such as Kohl’s and TJX have replaced them.
bottom line is that anchor tenants evolve: They come and go. And while filling
vacancies may present more of a challenge following a recession, the fact
remains that repositioning shopping centers through renovation and/or
redevelopment has always played an important role in the evolution of retailing
and the retail real estate industry.
Different This Time?
anchors leave a property? Bankruptcy certainly — and unfortunately — has an
impact. Sometimes an anchor tenant may relocate to another center when its
lease expires, choosing a more modern property or one that can accommodate a
larger footprint. Or a landlord may choose to capitalize on a lease expiration
or negotiate an early termination to let an underperforming tenant go and
replace it with a more desirable brand locked in at a higher rental rate.
tenant or landlord driven, the loss of an anchor signals a new paradigm for a
property, one that often requires both strategic rethinking and capital
infusion. Today, grocery-anchored shopping centers are in the spotlight as the
darling of the investment community. When offered for sale, these properties
can command low cap rates in the 5 percent to 6 percent range — and even lower
in some cases.
news regarding today’s sought-after grocery anchors is that size requirements
vary significantly, which translates into diverse demand. Strong regional
grocery chains operate large stores in many areas of the U.S. For example, in
the Northeast, ShopRite and Stop & Shop are among the supermarkets seeking
spaces in the 70,000-square-foot to 80,000-square-foot range. Specialty stores
like Whole Foods and Trader Joe’s are opening smaller stores ranging from
20,000 sf to 50,000 sf. At neighborhood centers, ethnic concepts are seeking
small units in the 10,000-sf to 20,000-sf range.
tenant’s perspective, consolidations and closures resulting from the recent
recession have opened doors for expansion for those who survived. And although
shopping center vacancies have begun to tighten, they still have a lot of
choices when it comes to choosing locations.
new reality, landlords looking to win the best tenants need to offer the best
product. As always, curb appeal and quality accommodations are paramount. They
also need to exercise flexibility. New services like shop-from-home online
ordering require designated parking. Some retailers are shifting formats to
accommodate their new e-commerce world. Many continue to right-size, which
often equates downsizing their footprints.
current market presents a particularly good — and pressing — opportunity for
repositioning shopping centers. While contractors are getting busy and pricing
is creeping up, financing rates are still at historic lows, making this a good
time to move renovation projects forward. Whether a full redevelopment or a
simple cosmetic facelift, investing capital into an asset can help gain the
competitive edge needed to attract tenants, consumers and, ultimately,
that in mind, this article focuses on successful redevelopment examples in the
grocery-anchored sector that solved problems common to many properties.
decades Hamilton Plaza in Hamilton, N.J., enjoyed the benefits of being a
grocery-anchored shopping center in the heart of a thriving community. However,
the property and the configuration of the ShopRite store there had become
dated. Additionally, a department store closing had resulted in 50,000 sf of
vacancy that, with limited frontage, was proving difficult to fill,
particularly as the recession took hold.
ShopRite’s commitment was imperative for continuing Hamilton Plaza’s
competitive positioning. The property ownership chose to take advantage of the
department store anchor vacancy to accommodate its long-time tenant while
working to strengthen the overall tenant mix. A $20 million renovation and
expansion of the center resulted in ShopRite growing from 45,000 sf to 82,000
sf. The project also included a new 10,000-sf end cap and two pad sites, along
with a full renovation of the building façades, landscaping, signage, and parking
Hamilton Plaza looks brand new, existing retailers have expanded or renovated,
and additional tenants have joined the mix. ShopRite now has a World Class
Store designation. A.C. Moore, another long-time anchor, has renovated its
20,400-sf store. Petco, Sleepy’s, Rainbow, Moe’s Southwest Grill, Texas
Roadhouse, and Let’s YO! all have opened locations at this thriving property.
case of Post Road Plaza in Pelham Manor, N.Y., a redevelopment focused on
securing a grocery anchor was the key to regaining competitive edge. Originally
developed in the early 1960s, this 260,000-sf shopping center had slipped from
its top-performing position in the trade area due to anchor tenant closings
first by Caldor and then Kmart, competition from new development, and
ownership invested $15 million in redesigning and redeveloping the property to
modern standards, with the goal to retenant it to better serve and attract
regional consumers. This included a push to attract a grocery anchor to fill
the Kmart vacancy. The $15 million project helped to successfully secure a
75,000-sf Fairway Market supermarket. Fairway is a market leader in terms of
sales and a much sought-after tenant in the region.
new tenants brought in as part of the repositioning include Dave &
Buster’s, Marshalls Shoes, HomeGoods, Lane Bryant, and a free-standing
Smashburger. Existing tenants Modell’s and Dress Barn expanded into new
prototypes and several others renewed their commitments there.
the category’s overarching appeal, in some cases grocery just may not be right
for a shopping center’s next chapter, even if the property historically has
housed a supermarket anchor. North Village Shopping Center in North Brunswick,
N.J., provides a case in point.
Weighing in on Anchors
Anchor tenants — those key retailers and service providers that draw consumers to a shopping center on a regular basis — remain active in today’s market. Yet, as always, the most prominent players and their requirements continue to shift and evolve. Beyond grocery, several recent changes and emerging drivers related to anchor tenant leasing are worth noting.
• A number of anchor categories that have led the market in recent years have slowed their expansion, including major home improvement (Lowe’s, Home Depot) and office supply (Staples, OfficeMax) chains.
• Retailers that have ramped up their expansion plans bridge a wide range of categories. Costco, Bass Pro Shops, TJX Companies (TJ Maxx, HomeGoods, Marshalls), Michaels, and Kohl’s are among them.
• Brands continue to display flexibility in meeting changing shopper needs and consumption patterns. This may include expansion with diversified formats, such as Walmart’s smaller Neighborhood Market model.
• Some established anchors continue to move in a “right-sizing” direction as they work to balance their online and bricks-and-mortar sales. Staples and Sports Authority, for example, are looking at smaller footprints in select locations.
• E-commerce-insulated entertainment concepts (Dave & Buster’s) and gyms (LA Fitness, Blink Fitness, Retro Fitness) are leading a new generation of anchor tenants. Significant variation in their size requirements shows that anchors do not necessarily have to be big boxes.
The bottom line? We may be seeing fewer anchor brands out in the marketplace than we did pre-recession, but that smaller pool is made up of brands that are expanding aggressively. That said, they remain selective when it comes to choosing their new locations. Top-tier properties absolutely are in demand, resulting in tighter vacancy rates and an upward trending in rents. At the same time, credit tenants remain focused on these better-quality, well-located assets. This poses continued challenges for class B properties and those in secondary locations.
at a heavily traveled intersection and passed by more than 80,000 vehicles each
day, North Village has everything a property could want in terms of location.
However, the relocation of its A&P supermarket to a nearby property and the
closing of a 90,000-sf Bradlees department store had rendered the center nearly
demand would not support another grocery store, nor could the current
configuration attract a large, modern supermarket. With this in mind, the owner
decided to take advantage of the opportunity to redevelop the property to
accommodate a new mix of big box retailers.
project shaved 40 feet of depth off the front of the building to accommodate
retailers with 25,000-sf to 50,000-sf requirements (and saved millions by not
demolishing the entire building and starting over from scratch). The redesign
also included a new façade and signage, redesigned parking lot, and upgraded
lighting and landscaping to exceed a new marketplace standard set by the
development of several new retail centers nearby.
before construction launched, Barnes & Noble signed on as a new anchor,
followed by Michaels, Bed Bath & Beyond, and Eastern Mountain Sports. A
strong mix of national tenants such as Panera Bread, Smashburger, and Chili’s
signed on to support these giants. Recently, Staples joined the tenant roster
the Right Direction
every property is different. Multiple factors — including those related to the
market and the property itself — come into play when determining and executing
the “right” strategy for stabilizing occupancy in the face of or following an
analyzing the regional marketplace, it is important to look at demographics,
the current tenant base, and the competition. What do other centers offer, and
what does the pipeline for new development look like? What retailers are
already in the market, and which are not?
might want to move and improve? For example, supermarkets often look for local
expansion opportunities that allow an existing store to stay open and serve
customers while the company builds out a larger, more modern location. What do
consumers want? If demographic trending shows an increase in household income,
for example, an upscale grocer may be an appropriate candidate to fill a
smaller anchor vacancy.
the market is an important first step in evaluating the best direction for a
particular property. The size, layout, current tenancy, and flexibility of the
center often determine the type of replacement tenant that makes the most
K. Harding, CCIM, is president of Levin Management in North Plainfield, N.J. Contact
him at email@example.com.