Grocery Stores Defy Retail Sector Slump

Michael Tucker

April 15, 2019

New grocery store openings increased 30 percent in 2018 compared to 2017 as grocers added more than 17 million square feet of space in the U.S., reported JLL, Chicago.

More than one-quarter of the new stores were in Florida, California and Texas due to expansion by their respective local market-leading grocers: Publix, Sprouts Farmers Market, Aldi, Kroger and H-E-B, the JLL Grocery Tracker 2019 report said.

"Grocery is one of the strongest retail sectors, with nearly twice as many new stores opening than closing last year," JLL Director of Retail Research James Cook said. He noted a distinct change in consumer grocery shopping habits shift toward shorter, more frequent trips rather than large occasional hauls. "As a result, grocers are focusing on developing smaller format stores under 10,000 square feet, with more local offerings to appeal to the surrounding community."

Cook said small-format discount grocer Aldi opened 82 new stores last year, accounting for nearly 16 percent of total new store square footage. Sprouts Farmers Market also continued at a fast pace, adding 30 stores in 2018 with another 30 stores planned this year. "In 2019, we expect to see even more grocery stores rolling out their smaller format stores as they battle razor-thin margins in prime locations while still serving evolving consumer needs," he said.

Cook said larger retailers need to evolve as consumer shopping habits change. "Major chains such as Walmart, Kroger and Giant Foods are all making investments in areas that aim to provide their customers with a flexible and reliable shopping experience that best suits their individual preferences," he said.

Beyond store openings, investment in grocery real estate totaled $9.9 billion in 2018, JLL said. Grocery cap rates softened a bit at in late 2018, increasing 11 basis points from 2017. While single-asset grocery transactions have declined 5.8 percent since 2016, the average price per square foot has increased 7.8 percent across the country and in primary markets the average price per square foot has increased nearly ten percent over the past two years.

Chris Angelone, Retail Capital Markets Lead with JLL, said he expects to see an uptick in premium grocery locations to go on the market this year "as real estate investment trusts and institutional investors continue to dispose some of their smaller neighborhood and community centers."

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