Grocery-anchored shopping centers : a better retail investment?

Abstract

A very popular hypothesis of late is that grocery-anchored shopping centers perform better and are less risky than other retail investments. This hypothesis is primarily based on three notions: 1) grocery stores are unique in their ability to attract shoppers on a regular basis, often two to three times a week. This provides a grocery-anchored shopping center with consistent traffic that benefits the in-line tenants; 2) Grocery stores represent a non-cyclical business. People need to eat whether the economy is strong or weak, therefore, grocery-anchored shopping centers can rely on a minimum level of traffic regardless of economic conditions; 3) Many retailers have experienced significant sales leakage to the Internet. This has recently led to the concept of replacing large stores with small showrooms. However, the Internet has not impacted the grocery store business as significantly. Although some grocers have attempted to implement online stores, the model has been difficult to implement and unsuccessful. Therefore, many investors view grocery-anchored shopping centers as a hedge to the threat of online shopping faced by other retailers. These three characteristics have led many core investors to allocate capital to grocery-anchored shopping centers since they are viewed as stable and low-risk investments relative to other real estate alternatives. The purpose of this Thesis is to evaluate the performance of grocery-anchored shopping centers relative to other real estate investments, primarily in terms of asset prices and capitalization rates. This Thesis will attempt to determine whether investors pay more for grocery-anchored shopping centers and whether a potential price premium is warranted based on actual performance. This Thesis will also measure the volatility of grocery-anchored shopping center prices compared to other retail and non-retail investments to help determine the relative risk of these investments.