Why real estate shoppers are bagging grocery-anchored plazas

They have become South Florida’s hottest retail assets. Will the binge last?

The checkout line for grocery store-anchored shopping centers in South Florida and the U.S. is crowded. Landlords such as Pebb Enterprises’ Ian Weiner are in the midst of a bountiful seller’s market due to significant investor demand for retail plazas featuring an Aldi, Publix, Winn-Dixie or other grocer as the main tenant. 

Weiner’s Boca Raton-based development firm and its partner, Banyan Development, also based in Boca Raton, sold a Boynton Beach retail plaza with a Sprouts Farmers Market for $33 million in September. The buyer, Carlyle Management, a New York-based real estate investment company managed by Charles Kosner, paid $630 a square foot for the 52,000-square-foot center. 

Investors are flocking to grocery store-anchored shopping centers,” Weiner said. “It is the favored asset in retail real estate. Having a grocery store provides the best return because they drive so much traffic to other tenants.” 

Pebb and Banyan join a diverse roster of owners that have been offloading grocery store-anchored shopping centers at premium prices. Out-of-state institutional investors and family offices are vying against local buyers like Boca Raton’s James Batmasian and Sunny Isles Beach’s Raanan Katz for retail properties that fulfill people’s daily needs and services. 

Sears spinoff Seritage Growth Properties sold Katz two Aldi-anchored shopping centers in Hialeah and near North Miami for a combined $66 million in August and October. In September, Barry Sternlicht’s Starwood Property Trust sold the Winn-Dixie-anchored Grove Market in Westlake for $19.5 million, or $253 a square foot, to a consortium led by Brooklyn-based family office Edge Ventures. 

Between June and October, 13 grocery store-anchored shopping centers in Miami-Dade, Broward and Palm Beach counties traded for a combined $436 million, according to property records. According to Weiner and other retail real estate experts, buyers have been paying an average of more than $200 a square foot since the middle of last year, up from $100 to $150 a square foot during the first half of 2021. 

Across the country, 735 grocery-anchored shopping centers changed hands last year, 13 more than the previous record set in 2014, according to a JLL report. The sales represented about $13 billion in acquisition volume, the report states. 

A resilient asset class

Grocery-anchored centers have always been the darling of retail pre-Covid, during Covid and post-Covid,” Weiner said. “They have shown to be the most resilient during downturns and the least impacted by e-commerce.”

Recession fears are driving some commercial real estate investors to park their money in retail properties that offer stable rental income and low vacancies, said Jaime Sturgis of Fort Lauderdale-based Native Realty. 

Centers anchored by grocery stores are considered a safe haven,” Sturgis said. “The resiliency and stability of these retail assets is what is driving this current cycle. It also makes it easier when it comes to lending. Banks like that.” 

Since the pandemic began, grocery stores have experienced growth, thanks to customers who were spending less time dining out. And that trend has continued as a result of rising inflation, said Beth Azor, a Weston-based commercial real estate investor. 

Last year, total grocery sales hit $803 billion, a nearly 16 percent increase compared to 2019, according to JLL. Regional and national grocers used the cash to renovate stores, add delivery fulfillment centers and open new stores, the report states. 

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New grocery store leases nationwide jumped 200 percent last year compared to 2019, JLL found. German grocer Aldi led the way with 88 new stores spanning 2.2 million square feet. It plans to add 150 more by the end of this year. In Florida, Publix remains the top grocery chain, adding 1.3 million square feet of new stores last year, the report shows. And more markets means more opportunities for other types of retailers.

 When more people are eating at home and purchasing groceries, there is a halo effect with other tenants,” Azor said. “When supermarket sales are higher, then the sales at the neighboring nail salon, bagel store and barbershop will be higher too because more traffic is coming to the property.”

Supermarkets that provide consistent foot traffic give investors confidence that a shopping center’s tenants can keep up with market-rate rent increases, Azor said.

They believe the shopping center will continue to be successful,” she said. “The big publicly traded REITs can tell Wall Street they bought three Publix shopping centers in South Florida and no one will question the validity of it.” 

Buyers cram the checkout line

Over the summer, Azor, who leads commercial real estate investment firm Azor Advisory Services, jumped into the sellers’ pool when she listed Plantation Crossing with an asking price of $23 million. The roughly 70,000-square-foot shopping center in Plantation is anchored by an Aldi.

We were blessed with over 15 offers,” Azor said. “And we negotiated with five bidders that came close to the price we were looking for. Three of them were from out of the country.”

In August, Azor sold the property to a joint venture between Madrid-based Azora and Miami-based Exan Capital for $22.5 million, or about $320 per square foot.

We were 95 percent leased, took the cap rate from 8.7 percent to 6 percent, and Aldi had just extended a five-year option,” Azor said. “It was the perfect time to sell.” 

Mainstreet at Boynton, the Boynton Beach retail plaza anchored by a Sprouts Farmers Market, attracted more than a dozen offers close to its asking price when Pebb put it on the market in February, Weiner said. 

But much like the items in the dairy aisle, everything has an expiration date, and Weiner believes rising interest rates will diminish the buyer pool for grocery-anchored shopping centers heading into next year.

Nine to 12 months ago, we would have gotten more prospective buyers, and some offers would have been above the asking price,” he said. “Today’s interest rates are significantly higher, so that affects pricing. It will be more challenging next year.” 

That change will cause some buyers who rely on financing to hit the pause button, said Todd Nepola with Hollywood-based Current Capita Real Estate Group.

It is still a sellers’ market,” Nepola said. “But instead of having 10 to 20 bidders on a property, you may only have three or four. Even the best borrowers will start having a tougher time.”