While retail traffic and sales are down everywhere, from Main Streets to regional malls, grocery-anchored strip centers have held up reasonably compared with most other shopping destination.
The Wall Street Journal reports in article Shopping centers anchored by groceries hold drawing power that, “The dollar volume volume of sales of grocery-anchored retail centers valued at $1 Million or more in the U.S. fell 39% in the first quarter to $252 million from about $581 millions a year earlier, while sales of all retail properties fell 71% to $2.9 billion, according to Marcus & Millichap Real Estate Investment Services. That’s a mouthful to be sure so let me translate: Sales were down almost 50% at grocery-anchored centers versus retail as a whole.
THE REAL WORLD RETAIL TAKEAWAY
Now’s the time to negotiate or re-negotiate a lease.
With so many stores closing, most centers, no matter where they’re located are having a hard-time attaining full occupancy. Small landlords realize that zero percent of zero is zero. Meaning, better to get a lower rent from a tenant than no rent at all.
And if you’re going to open a store, then a grocery-anchored center is the best choice right now, simply because people still have to eat. And that means they’re still shopping for groceries. While they may be buying less, they’re still making the trip, and that can’t be said for regional malls or other shopping destinations that are full of retailers who want to take your disposable income (when you’re not spending it right now).
A few things to think about if your going to entertain a lease at a grocery-anchored center:
1. Make sure the center is the right center. Just because the center has a grocery store doesn’t necessarily make it the right center. It has to be the right grocery store concept for your concept.
2. Make sure the tenant mix is right. You don’t want to open a boutique selling fashionable clothes and be sandwiched in between the cell-phone store and the dry cleaner and across from the key maker. That’s not the right mix. The right tenant mix means every customer is your customer.
3. Make sure it’s the right location in the center. This is critically important. So many retailers take space because it’s the right center. Make sure you don’t pick the storefront which has a blocked sightline from the parking lot. Likewise, don’t pick the site around the corner from the main shopping area. You get the point.
I checked out a new grocery-anchored center in LA about a year ago, thinking it would be the perfect location for a store concept I had. They wanted $8 a square foot. That’s ridiculous. In these tough times, they’ve lowered their rates and were willing to entertain percentage only rent for two years, so long as it went up to $8 a square foot in year three.
This store would have to do more than $1.5MM in year three to make the rent. That’s just too much for most small retailers. We’ll see what happens with the center and how it fares over the next couple of years.
Be smart. Be willing to walk away. Be willing to wait when thinking about where and when you want to open. It’s a buyer’s market. Make sure the seller you’re working with is willing to deal.