Friday, December 6th, 2019 December6th2019

Sell for More Trivia: What is the safest retail property to buy today?

Published on December 6th, 2019

Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.

 

Transaction volume is down for retail properties and the investment environment is extremely volatile.  However, Grocery-anchored shopping centers remain a sweet spot for investors.

Investors prefer assets anchored by grocers because they see them as less vulnerable to competition from e-commerce.  They’re also a big traffic driver that benefits other tenants in their centers.

They’re both experiential and necessity-based. Investors recognize there’s some threat to grocery, but it’s a little bit more of a mid/long-term threat. In a recent Gallup survey of 1,033 U.S. adults, 84% said they never order groceries online.

The general population wants to go in-store and enjoy the experience of picking out their products and price comparing and doing those things in a physical setting.

Plus, profit margins for grocers are very slim. As a result, delivering groceries using last-mile refrigerator trucks means hiked-up prices and added delivery fees…something most consumers don’t want.

Today, less than 3% of the annual U.S. grocery sales are conducted online. To put it in context, that’s a lot lower than apparel where 20%-25% of sales are online.

Grocers haven’t been hit by traffic losses, and more importantly, haven’t taken profit margin hits that the soft goods players have had as they adjust to e-commerce.

How are retail property sales?

Overall, there has been a drop-off in retail investment sales.  Many of the sales getting done are more opportunistic plays.

However, investment in the grocery-anchored shopping sector specifically has been relatively stable, with sales up over last year.  The volume of sales transactions involving grocery-anchored centers increased 3% so far in 2019.

We’re seeing investors, who maybe took a break from retail, start to dip their toes into the pool again, and grocery is definitely on top of that list.  Sellers are confident in the market and buyers are willing to pay.

Pricing is interesting, because if you look 2-3 years ago at grocery-anchored centers…whether you were in a primary, secondary or tertiary market…they traded in a pretty narrow band of cap rates, say within 100 basis points.  Today, we’re seeing a widening of that cap rate range.

 


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About Beau Beach, MBA CCIM

Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.

Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.

He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.

Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com