Grocery Store Anchored Strip Centers

Posted on February 21, 2011 by Scott Kadish

A recent article in REJournals.com noted that the grocery store anchored strip center remains a strong performing retail category. In all geographic markets, there is an over abundance of retail space. There are several reasons for the excess space:

            1)  Developers overbuilt with the availability of easy financing.

 

            2)  The economy has forced many retailers to close locations or cease operations all together.

 

            3)  Successful retailers have decided they need less stores in each market, and can fill in the gap with internet sales.

 

            So why have grocery store anchored strip centers remained so strong? David Birdsall, Chief Development Officer for Phillips Edison & Company, says it is because grocery stores can not fill in the gap with internet sales. Every geographic market needs a grocery store. “So far the model for replacing the grocery store with an Internet retailer has not been found, mainly because shopping for groceries remains both a personal preference and because of cost structure ....it's very difficult to charge a fee for the delivery of one box of pasta or a tub of butter ....for the foreseeable future this shopping center model still has viability.”

 

            What other concepts remain strong or have become strong? Urgent care centers seem to be a growing trend, and you certainly can’t get their service over the internet. Restaurants also report strong sales. On the other hand, the book store, which used to be a staple anchor for a life style center, may be obsolete in the near future. If not obsolete, it certainly will not be the anchor it once was.  

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Are We There Yet?

Posted on February 14, 2011 by John Weber

            The ubiquitous refrain at any gathering of commercial real estate professionals in the past 24 months can be summed up in a few short questions: Are you busy? Who is lending? No, seriously, who is lending? And -- of course -- when will this end?

            As 2011 kicks into gear the refrain is the same but our answers (hopefully) are beginning to take a turn for the better. The refreshed outlook is largely supported by a recent Morgan Stanley report titled “CRE Recovery in Place: Investment Cross-Currents.” Though heavy with charts and graphs, some of the positive takeaways include:

 

            1.         2010 formed a solid bottom and 2011 should see gradually increasing commercial asset prices and risk appetite. The caveat? Recovery is still market-by-market and much slower in those areas where housing is a primary economic driver.

 

            2.         A base (i.e. middle of the road) projection of a 12.5% increase in value for commercial real estate assets. This would leave prices about midway between the 06-07 peak and the 2009 valley.  As many owners begin to get above water on their loans, lending can be expected to pick up.

 

            3.         Bank losses on commercial real estate will remain high, but will begin to decline in late 2011 or early 2012. While the ratio of non-performing loans continues to be above average, forward-looking projections of delinquencies have decreased. As this improvement moves forward, expect CRE-heavy banks to out-perform others. Perhaps this could drive banks back to the market?

 

            4.         Strip-center based REITs will see a pick-up as major anchor tenants, including Wal-Mart, Best Buy, Dollar General and Jo-Ann Stores, have announced expansion plans for 2011.

 

This is music to the ears not only of real estate professionals like us, but also to the commercial property owners that had to sit on assets to avoid taking large losses through this past cycle. Maybe at our gatherings in 2012 we’ll be asking when we’ll get our next vacation instead of our next deal.

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Optimists Unite!

Posted on February 2, 2011 by Jesse Lipcius

The Associated General Contractors of America's and Navigant's recent industry-wide survey "Finds More Construction Firms Plan to Hire than Lay Off in 2011."  Read the AGC article with more links to state-specific data for the industry-wide Survey.  Included are numbers for Illinois and Ohio.  Survey results in both Illinois and Ohio indicate that the construction market should begin to grow again in 2012.  Hopefully, that prediction comes true a year early.       

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