FEATURE ARTICLE, MAY 2011

MEETING THE NEEDS OF NEIGHBORHOOD CENTERS
Changes in supermarket formats and retailer closings will shape the future of grocery-anchored centers.
By Jaime Lackey

Grocery-anchored centers are currently the darling of the retail world. These properties have proven stable when it comes to occupancy, and investment sale prices have rebounded quickly after the recession. However, these properties face some challenges as a result of recent economic conditions. 

One such challenge is scarcity of anchor tenants, says Ken Fioretti, vice president with Mahwah, New Jersey-based development firm Crossroads Companies. “With A&P and Pathmark taken out of the mix, there are only a handful of tenants left to anchor neighborhood centers,” he notes.

There are fewer grocery concepts looking for space, but the grocery stores that are thriving see this as an opportune time to pick up market share, says Matthew Harding, president and chief operating officer of North Plainfield, New Jersey-based Levin Management Corporation.

For example, Harding says that some smaller format grocers have learned to target their merchandise offerings successfully and they are looking for locations not overshadowed by larger format stores. These growing concepts include ALDI and Save-A-Lot, which offer a select assortment of quality foods at discount prices, as well as stores that cater product offerings to ethnic populations. For example, A Seabra recently took over a former Foodtown location in Union, New Jersey, which has a growing Portuguese population.

Dollar stores are active now, Fioretti says. However, many grocers have exclusive clauses that prohibit landlords from leasing space to dollar stores, especially larger format dollar stores that offer grocery products.

Restaurants, which were hurt deeply by the recession, are showing more interest in leasing vacant space. Franchised concepts, in particular, are seeking new locations. 

“Rent is still the number one issue. It is still a tenants’ market,” Fioretti says. “We don’t try to compete dollar for dollar. We offer great locations with great cotenancy. Many of our centers are anchored by ShopRite. We have the busiest anchor in the area and we are careful to create a good mix of retailers at our centers.”

But retailers are still looking for concessions. “Non-grocery tenants are looking to sign shorter leases,” Harding says. “They push for 5- to 7-year leases as opposed to 10-year leases. Some tenants are asking for higher contributions to build out stores. However, landlords must be very cautious to protect their investment.”

Just as there are fewer grocery concepts competing for space, there are fewer clothing and entertainment retailers looking for space in grocery-anchored centers. Fioretti explains, “Shoe stores and apparel retailers are gravitating more toward mall locations. Video stores, such as Blockbuster and Movie Gallery have closed many locations.”

“In fact,” he adds, “there are a number of categories that do not exist today or that have been swallowed up by larger format supermarkets.” For example, photo processors, florists, card and gift stores. Small format toy stores have been put out of business by larger boxes. Tanning salons are on the decline, thanks in part to taxes and media attention to health concerns. Drug stores have been affected by mergers as well as the introduction of pharmacies inside supermarkets. The financial crisis and bank mergers have created a lot of vacant bank space that needs to be absorbed before there is demand for bank pad sites.

Fioretti believes that over the long term, new shopping center projects will actually have less small shop space because there are fewer categories to fill the spaces.

In the meantime, developers are focusing on redevelopment — and that includes increasing anchor space at existing projects.

“Redevelopment is the new development,” says Harding.

Fioretti notes that redevelopment is easier in terms of permitting and often more cost effective than ground-up development. “It is usually cheaper to knock down an existing building and build a new store on the same spot where infrastructure already exists,” he explains.

The owners of grocery-anchored properties are redeveloping to accommodate supermarkets that want larger stores, to add additional retail space — especially restaurants and other tenants that draw customers to a center — and to upgrade centers to attract new tenants and more customers.

“Our goal is to make our centers the best in the market,” Harding says. “We focus on improving curb appeal, maintenance and tenant mix. We’re adding restaurants and service-type tenants. We want our centers to be the place that local residents go.”

He adds, “Redevelopment and façade improvement projects are becoming increasingly important as there is a greater spread between top-tier centers and those that are a step down. Centers must appear modern and address access challenges to remain competitive, attract tenants and draw customers.”

Crossroads at Stony Point Crossroads at Stony Point is located in Rockland County, New York Crossroads Companies opened Crossroads at Stony Point in November 2010. The 97,000-square-foot center is located in Rockland County, New York. The 9.5-acre project is anchored by a 70,000-square-foot ShopRite. “It is by far the nicest ShopRite I’ve seen,” says Ken Fioretti of Crossroads Companies. “The store’s layout is wide and bright. There is a huge produce area with prepared foods, a café, buffet, and seating areas.” The center has 11 additional tenant spaces. Signed tenants include Supercuts, Sakura Sushi, Angel Tips Nails and Stony Point Liquor. The company is planning to sign two additional restaurants, a dry cleaner and a cell phone store, as well as additional neighborhood-oriented retailers. “The town of Stony Point has really rallied behind this project,” Fioretti says. “We were going through the approval process at the beginning of the downturn. We were concerned about the timing, but we had a great anchor tenant and this is a really good project.” — Jaime Lackey Post Road Plaza At Post Road Plaza in Pelham Manor, New York, Levin Management Corporation has subdivided a former Kmart box and is leasing 75,000 square feet to Fairway Supermarkets. Levin stripped the former Kmart down to its steel frame and renovated the entire center. “Fairway is a unique operator. They offer fantastic produce, great seafood, they roast their own coffee and make their own pasta,” says Matthew Harding of Levin Management Corporation. “The concept works well here in Westchester County because the brand is well known in New York City and many local residents either work in the city or moved here from the city so they are excited to have a Fairway Supermarket in the neighborhood.” Levin is marketing 16,000 square feet on the ground level and 75,000 square feet on the second floor. “This is a great location with a very dense population and excellent highway access,” Harding says. “We have a number of new tenants but we also have tenants like Modell’s and Dress Barn, that have been at the center for decades.” — Jaime Lackey Hamilton Plaza Hamilton Plaza is located in Hamilton Township, New Jersey. Levin Management Corporation is fully renovating Hamilton Plaza in Hamilton Township, New Jersey. Anchor tenant ShopRite recently renewed with a 20-year lease. The renovation includes expanding the 50,000-square-foot ShopRite store to 80,000 square feet. Levin will add an additional 10,000 square feet of retail space as well as two pad sites, including one that has been leased to a Texas Roadhouse restaurant. The project will also include new lighting, landscaping and repaving. “This is a classic example of a center worthy of re-investment. We have the area’s leading supermarket as an anchor and a great geographic location in the center of a strong residential population,” says Matthew Harding of Levin Management Corporation. He adds that the timing works well because construction costs are down and finance rates are low. — Jaime Lackey

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