2016 investment outlook: Grocery-anchored shopping centers - by Karim Fadel

Karim Fadel, Unison Realty Partners

Today’s commercial real estate market is hot. As the growing demand in 2015 for commercial real estate investments has carried into 2016, investors are looking for new ways to yield better returns. In fact, they’ve become so focused on quick returns that they are increasingly comfortable with seeking more opportunistic deals, satisfied with pursuing new asset classes and subpar locations without considering the long term ramifications: that ultimately, when the market comes down, they will have more to lose.

That’s one of the reasons Unison is taking a different approach from the herd. We’re delving into a number of submarkets, from Chapel Hill, N.C., throughout the Southeast, investing in the asset class we’ve known to be reliable, successful, and low-risk: grocery-anchored shopping centers.

What makes us so sure that investing in grocery-anchored retail is a savvy move? The industry is booming. At the close of Q1 in 2015, shopping center vacancy stood at eight percent, with vacancy levels even lower (below five percent) for premium shopping center space. With over 3.6 billion s/f of product, community and neighborhood centers make up the majority (67.1%) of this inventory. When coupled with rising levels of suburban housing development, like we’re seeing in Chapel Hill, these properties will thrive – and they’re not going anywhere. That’s why now, at the top of the market, is a smart time to make this investment.

The speed with which grocery-anchored retail has been able to adjust to the changing needs of consumers has also been critical to success of these neighborhood hubs. The growing push towards omni-channel retail, which consists of shopping done both online and in-person, has given brick-and-mortar retailers new opportunities to differentiate themselves in the physical space and show consumers how invaluable they are. Many retailers are evolving their former in-store only strategy successfully, providing customers with the flexibility to order online and pick up in-store, return items in-store, and even use digital trackers to locate a product’s availability in a physical store.

How can retailers guarantee a steady flow of traffic? One of the most important attributes of grocery-anchored retail is that it is convenient, accessible, and based out of necessity. From a quick trip to the grocery store for eggs to a stop at the dry cleaners or post office, grocery-anchored shopping centers have consistently answered the basic daily needs of the communities around them. As these neighborhood centers have adapted to the changing needs of consumers, many have even evolved into a community meeting place where friends and neighbors can come together. Even as e-commerce becomes a bigger player in many industries, it’s not having a substantial impact on grocery-anchored retail because of the everyday necessities these centers provide.

This year (and in the years to come), grocery-anchored retail will remain a consistent resource for communities and neighborhoods, which is why we’re so confident that it is a smart investment. At a time when prices are high and investors are pursuing the same properties, it’s time to move away from the herd mentality toward quality real estate. For that reason, in 2016, Unison Realty Partners will remain true to our contrarian investment philosophy, seeking out superior properties that will remain stable and profitable.

Karim Fadel is the founder and principal of Unison Realty Partners, Boston, Mass.