Capitalizing On Investor Demand For Grocery-Anchored Shopping Centers

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GlobeSt.com

CORONA DEL MAR, CA—While sales transactions have consistently increased in retail categories such as single-tenant net-leased investments and multi-tenant strip centers, Southern California’s lack of supply has kept grocery-anchored shopping centers moving at a more tepid pace. The demand for properties is compressing cap rates and impacting strategies, says president Ed Hanley and EVP Bill Asher of Orange County-based Hanley Investment Group, but it could bear fruit. GlobeSt.com spoke with the executives about investor demand for grocery-anchored shopping centers in inland Southern California. 

“Quality grocery-anchored shopping centers have historically been in low supply in Southern California,” Hanley says. “With interest rates at historic lows, owners have been selective on prospective grocery-anchored dispositions while considering refinance options and long-term hold objectives.”

According to Hanley, “The pent-up demand for grocery-anchored shopping centers has been so great that the average cap rate compressed over 60 basis points for grocery-anchored centers that sold in inland Southern California in 2015 compared to 2014 (according to CoStar). What was previously a low 6% cap rate in 2014, transitioned into the 5% cap rate range in 2015 for grocery-anchored centers located in Riverside and San Bernardino Counties.”

CoStar research indicates that 15 grocery-anchored centers traded hands in the last two years in the Inland Empire. “This is not surprising,” says Asher. “Neighborhood shopping center investors have broadened their acquisition criteria to the Inland Empire due to the overall continued economic growth of the area. The Inland Empire is in the top 25 of the largest economies in the US – comparing closely to prominent cities such as Austin, TX; Seattle; and Tampa, FL. The total population of the Inland Empire has increased over 35% in the last 15 years and the area is home to one of the most prominent and active industrial markets in the nation, resulting in the creation of more jobs (only behind San Francisco and San Jose in California in 2015) and a consistent declining unemployment rate,” Asher reports.

Capitalizing on the demand, Hanley tells GlobeSt.com that his firm is marketing for sale Stater Bros. Plaza in Chino, CA, which is listed for $35 million, a rare offering of a grocery-anchored shopping center for sale in the Inland Empire. Built in 2008, the 95%-occupied 73,600-square-foot shopping center is located on 7.54 acres at the intersection of Euclid Avenue and Schaefer Avenue.

“The Chino Stater Bros. Market is one of the top performing locations in the chain,” says Hanley. “The store’s success is a testament to the strategic decision that the company made over eight years ago to relocate to a new prototype format from a smaller and older location up the street. It’s now a high volume store in a 180-degree trade area with limited competition within a three-mile radius. The shopping center also offers tremendous future upside potential as approximately 48,000 new homes are projected to be built over the next 20 years.”

“Rarely offered for sale and highly sought-after, neighborhood shopping centers with a successful grocer satisfy the daily and weekly needs of consumers and will continue to do so for years to come,” Asher says.

Asher adds that the grocery-anchored center is the “brick and mortar retail investment,” which will continue to thrive today and in future economic cycles. “They are internet resistant, typically with complementary food and service-related retailers that buyers ranging from REITs to private buyers (foreign and domestic) are smartly sinking their money into for a secure and stable long-term investment,” reports Asher.

Visit Hanley Investment Group at Booth #S381S at ICSC RECON in Las Vegas.

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